China was driving the FTSE 100 once more on Monday as concerns about the property sector hit London’s leading index.
While European indices such as the German Dax and French CAC carved out respectable gains, the FTSE 100 dipped 0.3% after a major property company missed a bond payment.
The FTSE 100 started the day in the red before staging a rally that was quickly sold into.
“A crisis in the Chinese real estate sector is a story the market has heard before and not one which has typically come with a happy ending for stocks,” said AJ Bell investment director Russ Mould.
“News China property giant Country Garden had missed bond payments as it racked up big losses was always likely to prompt selling in Asian markets and that’s fed through to the European open.
“This latest calamity is reflective of a recovery which has not lived up to expectations since the world’s second largest economy ditched zero-Covid measures at the end of last year. The usual catalogue of names with Chinese ties were under the pump including Burberry, Standard Chartered and Prudential. The one silver lining for the West may be a deflationary impact from China’s woes which helps in the battle against inflation.”
The FTSE 100 has managed to close above 7,500 since 19th July with the round number acting as a level of support over the past two weeks.
However, persistently downbeat news emanating from China and recent weakness in US tech stocks may culminate in further weakness for London’s leading index.
From a technical analysis perspective, the FTSE 100 is starting to form a very neat descending triangle formation which is typically bearish for stocks. A test of the 7,300 region will be fascinating to see if this key level of support can hold, or if the descending triangle is confirmed and we break lower.
UK housebuilders were among the top fallers as the highly cyclical sector faded a recent rally. UK inflation stands at 7.9% and continues to be a headache for the Bank of England who will likely hike rates again at their next meeting.
The all-important FTSE 100 natural resources sector was driving the losses on Monday with names such as Anglo American, Rio Tinto and Glencore giving up between 1%-2.5%.
Negative developments in China have been met with the selling of China-exposed stocks before hopes of stimulus reinvigorate the bulls. This pattern has been consistent, but may not last forever.