London midday: Stocks go into reverse as trade war kicks off
London stocks quickly lost confidence on Friday morning and slid into the red as the US and China finally kicked off their long-mooted trade war, while the UK government continued to squabble over Brexit customs plans.
The FTSE 100 was down 23.39 points or 0.31% at 7,579.83 just after midday, having earlier been risen to 7,629 on the back of the previous day's positive session and following the strongest Wall Street performance in more than a month.
Washington imposed tariffs overnight on $34bn of Chinese imports, with China officially responding with the launch of its retaliatory measures on Friday at midday Beijing time. Chinese stock markets fell initially but finished in the green apart from B-share markets, which are those traded in foreign currencies.
“China promised not to fire the first shot, but in order to safeguard the country’s core interests as well as that of the people, it is forced to fight back,” the Chinese Commerce Ministry said in a statement. With Friday's US measures expected to be followed by further tariffs on $16bn of Chinese goods in a few weeks, Beijing said this would shave 0.2 percentage points off of China’s GDP and the “overall impact would be limited”.
The ministry called the US actions “a violation of world trade rules” and said that it had “initiated the largest-scale trade war in economic history.”
Confirmation of Beijing's response was enough to erase the morning's tentative confidence earlier, said analyst Connor Campbell at SpreadEx.
"The fact the European indices didn’t then plunge into the red is to be applauded," he said, with the FTSE only trickling lower, while the German and French benchmarks sat effectively unchanged, and forex markets similarly quiet.
"That could all change, however, dependent on the tone of the US open. Currently the Dow Jones is set to slip by around 60 points after the bell, a move that would take the index back below 24300. If those losses were to increase in the run up to the US session then the situation in Europe could take a turn for the worse."
Minutes released overnight from the FOMC’s June policy meeting showed policy makers acknowledging the negative risks of Washington’s current belligerent trade policy, pointing to the possibility for negative effects on investment and business sentiment.
But despite those headwinds, policymakers still said there was broad support for “gradual” rate increases, saying that the benchmark federal funds rate could be at or beyond its neutral level “sometime next year”.
"Today sees markets focus almost entirely on the US, with the latest jobs data expected to ramp up volatility as we see out a historic week," said Joshua Mahony at IG. "Yesterday’s FOMC minutes did little to dispel US hawks, with expectations for a September rate rise currently around 80%. Today’s jobs report is unlikely to really impact the expectations for the path of US rates, yet with an underwhelming ADP figure on Wednesday, any such continuation of that theme would likely drive further dollar weakness."
US non-farm payrolls are due at 1330 BST, with expectations are for 195k new jobs to have been created in June, after May’s impressive 223k.
UK data was limited to the Halifax housing survey, which showed house prices in the three months to June were down 0.7% on the preceding three months, and annual growth slowing to 1.8% from the 1.9% for May. On a monthly basis, prices rose by 0.3% in June to £225,654.
House prices continue to remain broadly flat, said Halifax's managing director Russell Galley. “Activity levels, like house price growth, have softened compared with the final months of last year. Mortgage approvals have been in the low range of 63,000 to 67,000 since the start of the year, whilst home sales have remained flat so far this year."
In company news, shares in Inmarsat fell as US satellite rival EchoStar Corporation revealed that the UK company had earlier this week rejected a 532p-per share takeover offer. EchoStar said that it was continuing talks to try and agree a deal.
BCA Marketplace fell as it revealed that private equity group Apax had walked away after the operator of WeBuyAnyCar.com rejected two takeover proposals.
Rolls-Royce was also lower as it agreed to sell its commercial marine business to Norway's Kongsberg for net proceeds of around £350m to £400m.
Going the other way, ITV topped the FTSE 100 leaderboard thanks to an upbeat note from Societe Generale, which upgraded its recommendation on the shares to 'buy' with a price target of 220p upped from 150p. Analysts said the shares look relatively cheap and noted ITV's potential as a takeover target in light of the takeover battle for Sky.
Rubber glove maker Essentra acquired Sweden-based Nolato Hertila for a cash consideration of approximately SEK 58m (£4.9m), to expand its components division's product range.
Ahead of an expected tense annual shareholder meeting, Stobart Group revealed that chief financial officer Richard Laycock has decided to step down. The shares were in the green however, with the Southend Airport owner saying it has started the new trading year trading "satisfactorily".
Virgin Money and suitor CYBG were both higher after an announcement from Virgin Money the previous day that it had reached a capital agreement with the Prudential Regulation Authority on new models for its mortgage portfolio which will reduce the applicable risk weighting. With an estimated increase in its core tier 1 ratio to around 16% as of 30 June from 13.8% at the end of December, analysts said this freed up approximately £200m of core tier 1 capital.
Market Movers
FTSE 100 (UKX) 7,587.03 -0.21%
FTSE 250 (MCX) 20,622.15 0.01%
techMARK (TASX) 3,520.20 0.23%
FTSE 100 - Risers
ITV (ITV) 180.90p 4.57%
Relx plc (REL) 1,660.00p 1.53%
Severn Trent (SVT) 2,054.00p 1.43%
Just Eat (JE.) 817.00p 1.34%
Ocado Group (OCDO) 1,035.75p 1.25%
United Utilities Group (UU.) 783.20p 1.06%
Reckitt Benckiser Group (RB.) 6,426.00p 1.01%
GVC Holdings (GVC) 1,051.00p 0.96%
Burberry Group (BRBY) 2,056.00p 0.88%
National Grid (NG.) 866.61p 0.87%
FTSE 100 - Fallers
Direct Line Insurance Group (DLG) 331.20p -3.41%
Fresnillo (FRES) 1,114.00p -3.09%
Rightmove (RMV) 5,086.00p -2.49%
Associated British Foods (ABF) 2,545.00p -2.27%
Anglo American (AAL) 1,683.80p -2.20%
Berkeley Group Holdings (The) (BKG) 3,539.00p -2.02%
Admiral Group (ADM) 1,874.00p -1.83%
Standard Life Aberdeen (SLA) 315.30p -1.50%
BP (BP.) 574.18p -1.43%
Randgold Resources Ltd. (RRS) 5,736.00p -1.38%
FTSE 250 - Risers
Dechra Pharmaceuticals (DPH) 2,934.00p 3.60%
Stobart Group Ltd. (STOB) 236.50p 3.50%
Equiniti Group (EQN) 242.00p 3.42%
BCA Marketplace (BCA) 228.00p 3.17%
Pennon Group (PNN) 803.20p 2.55%
Stagecoach Group (SGC) 158.80p 2.52%
Wetherspoon (J.D.) (JDW) 1,269.10p 2.51%
Intu Properties (INTU) 191.40p 2.41%
Energean Oil & Gas (ENOG) 525.00p 1.94%
IP Group (IPO) 130.00p 1.88%
FTSE 250 - Fallers
Inmarsat (ISAT) 486.80p -7.45%
Just Group (JUST) 127.20p -5.36%
esure Group (ESUR) 204.20p -4.67%
Sophos Group (SOPH) 469.20p -3.58%
Hochschild Mining (HOC) 184.40p -3.13%
Kaz Minerals (KAZ) 797.60p -2.85%
AA (AA.) 123.00p -2.61%
Hastings Group Holdings (HSTG) 232.20p -2.60%
Contour Global (GLO) 244.00p -2.40%
Ferrexpo (FXPO) 173.75p -2.11%