London pre-open: Stocks seen muted as investors mull China data

(Sharecast News) - London stocks were set for a muted open on Wednesday as investors mulled the latest Chinese trade figures, which showed a slide in exports. The FTSE 100 was called to open just eight points higher at 7,636.

CMC Markets analyst Michael Hewson said: "Looking towards today's European open, Asia markets have had to digest the latest trade numbers for May from China at a time when there are real concerns that the recovery there is running on fumes.

"While the relaxation in covid restrictions at the end of last year prompted a solid rebound in economic activity, the last two months have seen this pickup in economic activity run into some trouble in the aftermath of Chinese New Year.

"China trade in March saw the elements of a pickup in economic activity, with a strong surge in exports of 14.8%, while imports improved as well, although they were still negative. This rebound in economic activity is slowing already if recent inflation and consumption data is any guide.

"Factory gate prices have been deflating for the last 6 months and look set to get worse later this week.

"There was no improvement in the April import numbers as they got worse with a sharp decline of -7.9%, although some of that may be down to lower prices in some areas, rather than lower volumes. Export growth slowed in April to 8.5%, while recent manufacturing and services PMI numbers have also pointed to an economy that is seeing evidence of a slowdown in economic activity.

"With concerns about a slowdown in the Chinese economy growing, today's trade numbers have served to reinforce those concerns, with imports coming in at -4.5% and exports plunging by -7.5%, a one year low."

Hewson said that while the imports numbers were better than expected, the plunge in exports into negative territory for the first time in three months is "a real concern".

On home shores, the latest data from Halifax showed that house prices fell year-on-year in May for the first time since 2012.

House prices were down 1% on the year, and flat on the month, with the average price now standing at 286,532.

Kim Kinnaird, director, Halifax Mortgages, said: "As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end.

"With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take Base Rate above 5% for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market.

"This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling. Therefore further downward pressure on house prices is still expected.

"One continued source of support to house prices is the labour market. While unemployment has recently ticked up from very low levels, brisk wage growth would over time help to improve housing affordability, if sustained."

In corporate news, niche electronics maker DiscoverIE Group reported a 70% rise in annual profits, driven by a strong order book.

The company said pre-tax profit for the year to March 31 came in at £29.1m. Revenue was up 18% to £449m.

It added that the current financial year had started well with continued organic sales growth and its order book remained at a higher-than-expected level, in line with last year, "providing good visibility of demand".