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FTSE 100 closes in red for second day this week as Trump trade threats turn real

The market has been seeming complacent on Trump’s tough protectionist rhetoric..until now

London skyline
The FTSE 100 closed lower on Tuesday
  • FTSE 100 closes down 27 points

  • United States tariff tit-for-tat escalates

  • Dow Jones down 289 pts

  • Friday's OPEC meeting in focus

  • Profit warnings hit Debenhams, Footasylum and McCarthy & Stone

 

Britain's blue chips closed in the red for the second time this week as global equities took a bashing as trade tensions escalate.

FTSE 100 closed down over 27 points at 7.603, while FTSE 250 shed over 163 points to close the afternoon  session at 20,835.

"For weeks the market has been relatively complacent that Trump’s tough protectionist rhetoric were merely a negotiating tool; however, the realisation that the US President is willing to go ahead with his threats has sent a shiver through the markets," said Fiona Cincotta, senior market analyst at spreadbetter City Index.

On Wall Street, the Dow Jones Industrial Average has tanked 289 points at the time of writing, while the Nasdaq is down over 61.

The German Dax is off a further 1.5% today extending 1.3% loss from the previous session, with large exporters dominating the biggest losers.

But Brent crude  sailed upward, adding 2.59% to US$75.34 a barrel, ahead of the key OPEC meeting in Vienna on Friday (June 22), where it is widely expected more barrels will be allowed to flow into the market.

Top riser on Footsie was take-away app Just Eat (LON:JE.), while the biggest loser was Smith DS (LON:SMDS), down 4.48% to 525p.

3:25pm: FTSE 100 remains in doldrums as profit warnings and trade war dents sentiment

The FTSE 100 was down 42 points or 0.56% to trade at 7,588 with just over an hour until Tuesday’s close.

Whilst a string of profit warnings provided the sessions early trading triggers, for the most part the day’s narrative was dominated by the apparent escalation of the so-called trade war between the United States and China.

In New York, the Dow Jones slumped more than 409 points or 1.64% to 24,577.

“Global stock markets have reacted strongly with the US Dollar and Chinese Renminbi weakening,” said Chris Payne, managing director at GWM Investment Management.

“European markets have been selling off as automakers and miners - the sectors most at risk of a trade war – have fallen sharply. In addition, Shang-Hai stocks have plunged to two-year lows.”

Payne added: “Despite all this tit-for-tat posturing, an all-out trade war is unlikely to ensue because it will not benefit anybody, especially China whose economy is going through a major deleveraging process.

“It should also be noted that China will soon run out of US goods on which to impose retaliatory tariffs which will move this negotiation to a more sensible and constructive forum.”

3:10pm: Brent crude expected to drop on OPEC meeting

Cantor Fitzgerald analyst Jack Allardyce believes the coming OPEC meeting could result in lower crude prices, tipping Brent to dip around US$5 per barrel.

Allardyce said the broker shares “the general expectation” that crude oil supply quotas will be increased, but, that it will probably more in line with the smaller ranges being quoted - estimated between 300,000 to 600,000 bopd.

“We would see the mooted higher end of the forecasts (1.5-1.8mmbopd) as a struggle due to actual physical capacity,” the analyst said.

“In terms of the production increase, we could see this knocking c$5/bbl off Brent and perhaps squeezing the WTI discount a little.

“However, taking into account the recent inventory draws (suggesting that the market actually requires a bit more supply) we wouldn’t expect too much more than that.”

He added: “Given the disagreement amongst the ranks we’d be a little surprised if a formal agreement was made regarding a wider cartel, but the Saudis and Russians do seem to be completely in step in terms of oil policy so it probably could be something we see in the not-too-distant future.”

2:35pm: Dow Jones opens down 316 points, FTSE 100 remains lower

Tuesday’s Wall Street open followed pre-market indications with the Dow Jones down 316 points or 1.26% to 24,671 in opening deals.

At this level, the Dow has now erased its earlier gains for the year to date.

At the same time the S&P 500 edged 0.2% lower to 2,773 and the Nasdaq dropped 76 points or 0.99% to 7,677.

In London, at 2:35pm, the FTSE 100 was down 33 points or 0.46% changing hands at 7,597.

1:30pm: FTSE 100 remains on back foot as Dow Jones poised to drop 300 points

Wall Street is expected to open sharply lower, with the Dow Jones futures pointing to a 311 point decline to 24,705.

The S&P 500 and Nasdaq are similarly set for a soft open.

In London, the FTSE 100 was down 42 points or 0.56% changing hands at 7,588.

“Donald Trump’s latest threat to impose fresh tariffs on China has roiled financial markets and left investors on high alert,” said Lukman Otunuga, FXTM analyst.

“The ongoing friction between the two nations has clearly kept market players on edge, with global stocks sliding amid the growing caution.

“With the escalating ‘tit-for-tat’ trade war seen as a major risk to global stability, investors may offload riskier assets for safe-haven investments.”

12:10pm: FTSE 100 sees a modicum of respite, but Wall Street seen sharply lower

City traders saw a modicum of relative respite as Tuesday’s lunchtime arrived, with the FTSE 100 narrowing the morning’s earlier losses.

Changing hands at 7,594 London’s blue-chip benchmark was off 36 points or 0.48%.

Market watchers are keeping eyes on foreign exchange and US futures for their next steers.

“The FTSE managed to halve its initial decline from 1% to 0.5% as lunchtime approached, allowing the index to lift back towards 7600,” said Connor Campbell, analyst at Spreadex. “It appears that the pound’s own half a percent decline against the dollar, the currency’s balking at the government’s ongoing Brexit battles, helped the FTSE staunch its losses.

“Cable is now under $1.318 for the first time in 7 months, with sterling likely praying for the slightly whiff of hawkishness from the Bank of England on Thursday.”

Campbell added: “Looking to this afternoon and there is still plenty to suggest Tuesday’s trading could go further southwards.

“The Dow Jones is facing a 300 point plunge when the bell rings on Wall Street, a dive that would leave the index below 24700 and effectively complete the erasure of the gains the Dow saw in the first week or so of June.

“There’s not a lot on the agenda this afternoon to distract from the trade tensions, so the markets will be on high alert for any updates from Trump or Beijing.”

11:15am: Crude oil in focus ahead of OPEC meeting

The oil market is in focus ahead of this week’s OPEC meeting, set for Friday, where the crude cabal will assess demand and an apparently stronger market.

Brent crude was down about 0.5% on Tuesday changing hands at US$74.95 per barrel, marking its lowest level since April.

Oil prices have softened in recent weeks for a number of reasons – anticipation of higher OPEC production, weaker emerging market demand, risks of trade disputes and the possibility of rising inventories.

Goldman Sachs, however, reckons the crude market will remain in deficit and, in a note, the bank’s analysts said the market had resilient demand growth.

According to Goldman, the market will be “moderately tighter” through to the second quarter of 2019, despite the possibility that OPEC and Russia output will reach new highs by next summer.

“While concerns over OPEC production and demand may continue to weigh on prices in the near term, this leads us to reiterate our forecast for Brent prices to rally further, with risks to our peak $82.5/bbl forecast still skewed to the upside later this year,” said analyst Damien Courvalin.

Elsewhere, also discussing the crude market, CMC Markets analyst Michael Hewson said: “Last week US President Trump broke with convention by saying that OPEC should stop manipulating prices higher and increase production in an effort to help prevent this income squeeze hurting US consumers, where prices of gasoline have pushed well above $3 a gallon in most of the country.

Hewson added: “Putting to one side the fact that it is some of President Trumps policies that have helped fuel this rise, in prices, pulling out of the Iran nuclear deal being one, this week we will see OPEC members and Russia sit down a discuss a proposal to increase production levels by 1m barrels a day, thus drawing to a close production caps that have lasted since late 2016.”

“There is an element of self-preservation in seeking to do this, as while most oil producers prefer higher prices they will also want to avoid a scenario where prices reach a level where demand drops off sharply, thus triggering a global slowdown, as well as accelerating the push for renewables.”

10:30am: FTSE 100 stuck on back foot as US vs China tariff tit-for-tat continues

The FTSE 100 remained on the back-foot through Tuesday Morning’s deals as the market continues fear what will come of the apparently escalating trade dispute between the United States and China.

Standing at 7,589 the index of London’s top 100 shares was down 41 points or 0.55%

“The list of who threatened what is getting long,” said Fiona Cincotta, City Index senior market analyst.

Cincotta added: “With both sides seemingly determined to retaliate it is hard to see how this will end without a bloodshed for business, particularly US businesses.

“The Federal Reserve's officials have already warned that Trump’s tariffs are scaring companies from making new investments.”

The analyst further noted the knock-on impact of stronger US dollar against the British pound, which is not without its more localised triggers - not least the evidently messing politics involved in executing Brexit.

“The dollar was one of the few assets benefiting from the Sino-US tensions and rose against a basket of currencies.

“The pound, however, was bogged down by domestic problems and declined below $1.32 for the first time since November.

“Teresa May continues to struggle to get any Brexit-related decision approved by the Parliament and a vote by the Lords is about to make her life even more difficult because it will require that the Commons approve any Brexit deal reached between the government and Brussels.”

9:45am: FTSE 100 falls as slew of profit warnings compound US-China trade volatility

London’s FTSE 100 has extended yesterday’s losses as a slew of weak trading updates and results further compounded the market’s worries.

At 9:45am, the FTSE 100 was down 50 points or 0.66% changing hands at 7,578.

Monday had started the week poorly, mainly due to fears of an escalating trade war between the United States and China as well as potential political uncertainty in Germany.

Since then, Donald Trump's increasingly incendiary moves towards China, the latest step was a further 10% tariff on some US$200bn of Chinese imports, continues to stoke market volatility.

Closer to home, however, there were more immediate worries of investors in London who are facing up to multiple profit warnings today.

“Another bad day for UK Retail and Housebuilders, with profits warnings from Debenhams and Foot Asylum hurting for former and McCarthy & Stone doing the same for the latter. And then there is hobby group Hornby and FTSE member Ashtead too down in the dumps too,” said Mike van Dulken, head of research at Accendo Markets.

The City’s natural resource sectors, mining particularly, are also seen weaker largely due to their reliance on Chinese trade.

8:30am: FTSE 100 hit by escalating trade war; Debenhams issues yet another profit warning 

The FTSE 100 fell 67 points to 7,563.84 as London reacted to escalating trade war between the US and China.

The mining stocks, heavily reliant on the world's second-largest economy, were hit hard with majors Glencore (LON:GLEN), BHP Billiton (LON:BLT), Anglo American (LON:AAL) and Rio Tinto (LON:RIO) off 2.8-3.0%.

The top faller was the US-focused plant hire giant Ashtead (LON:AHT), which was down almost 8% in the wake of full-year numbers, which seemed to passed muster.

Of course being an exporter of services in these febrile times brings with it risks that the market were apparently pricing into the company's valuation Tuesday.

One the flipside, the Anglo-American building supplies group Ferguson (LON:FERG) fared better in the wake of a solid set of third-quarter figures.

Its shares rose 1.5%. City broker Liberum repeated its 'strong buy' recommendation, adding: "We continue to see the shares as undervalued given the rising importance of the US business, which is an unrivalled leader in its sector."   

For investors in Debenhams (LON:DEB) profit warnings are becoming all part and parcel of the experience. 

Shares in the department store chain crashed 12% to 17.19p. Broker Liberum reckons they are worth 10p each.

Proactive news headlines

Taptica International Limited (LON:TAP) saw its shares jump in early morning trading Tuesday as it said its underlying earnings (EBITDA) for the 2018 financial year would be moderately ahead of market expectations. The AIM-listed mobile advertiser said sales momentum from 2017 had continued into the current year in both its performance-based marketing and brand advertising businesses.

Powerhouse Energy Group PLC (LON:PHE)  has announced that its demonstration energy generation plant powers the Energy Centre at University of Chichester’s Thornton Science Park microgrid for the first time.   The AIM-listed firm said this is the first practical application of this leading-edge technology of taking waste plastic and converting it to clean electrical energy through PHE’s proprietary G3-UHt Distributed Modular Gasification (DMG) process.

Haydale Graphene Industries PLC  (LON:HAYD) has been paid £150,000 for fast-tracked pre-production trials of a graphene-enhanced composite material for an unnamed customer, It said today. Ray Gibbs, chief executive said: "This contract, fully funded by the customer, is a perfect example of the work Haydale is doing across a range of composite product applications.

Orosur Mining Inc (LON:OMI)(TSE:OMI) has appointed Bob Schafer as a non-executive director. He replaces Roger Davey, who is retiring. Schafer has nearly 40 years of experience in the mineral industry, working in the international sector with both major and junior mining companies. He is founder and managing director of Eagle Mines Management, a globally active private natural resources corporation.

Ethernity Networks Ltd (LON:ENET) hailed operational progress in its first year as a listed company but the company admitted its financial performance had disappointed The internet data handling specialist, which listed in June of last year, said that in keeping with the experience of its peers, it had taken longer than anticipated to land sales contracts as a result of which it had failed to meet expectations in terms of revenue and operation profit for 2017.

InnovaDerma PLC (LON:IDP) chairman Haris Chaudhry said the life sciences and beauty products group had delivered a strong revenue performance over the financial year just ending. But profits are likely to undershoot expectations thanks to significant one-off investments made in the final quarter, allied to stock availability issues for its Roots hair care range.

Strategic Minerals Plc (LON:SML) has completed a 65 hole aircore drilling programme at the Hanns Camp joint venture and at the Mt Weld tenement of the Central Australian Rare Earths project, both in Australia, A total of 3,863 metres was drilled At Hanns Camp, 25 holes totalling 1,290m were drilled, while at Mt Weld, 40 holes totalling 2,573 metres were drilled.

Alliance Pharma plc (LON:APH) is acquiring the Asia-Pacific marketing rights to medical anti-dandruff shampoo Nizoral for £60mln, funded using a mix of cash and debt. It is raising a net £32.1mln via a placing of stock with investors at 91 pence and will draw the rest down from its borrowing facility.

University technology incubator Frontier IP Group Plc (LON:FIPP) has taken a 24% stake in Cambridge Material Testing Solutions. CMTS is developing new software and hardware to measure the material characteristics of critical metal components, such as how hard or stiff they are and their remaining working life.

Alternative energy group Active Energy Group PLC (LON:AEG) said it is now focusing on more attractive markets after a year of restructuring in 2017. The group has now identified the regions in which it wishes to operate - primarily the USA, Canada and Europe – and has exited the low margin, high-risk Ukrainian wood fibre operations, leaving it to focus on its coal replacement biomass fuel, CoalSwitch, and its engineered soils derivative, PeatSwitch.

In results for the year to December 2017, Ormonde Mining Ltd (LON:ORM) booked a loss of just €100,000, as against a loss of €2.29mln in 2016. Cash in the bank at year end was just over €500,000. The reduction in losses comes as Ormonde continues with construction at the Barruecopardo tungsten project in Spain.

Rose Petroleum PLC (LON:ROSE), the AIM quoted natural resources business, has announced the appointment of Cantor Fitzgerald Europe as its financial adviser and joint broker with immediate effect. It added that Allenby Capital will remain as the company's AIM nominated adviser and Turner Pope Investments remains as a joint broker.

Savannah Resources Plc (LON:SAV), the AIM quoted resource development company, announced that it has issued 3,051,190 new ordinary shares at exercise prices of 6p per share and 4.62p per share following an exercise of warrants and options.

6.45am: FTSE 100 expected to open on back foot 

The FTSE 100 is expected to ease back in early trade on Tuesday, extending recent declines following falls overnight from US and Asian markets amid escalating worries over a US/China trade war.

Spread betting firm London Capital Group expects the UK blue chip index to open about 23 points lower at 7,608, having closed around 2.6 points lower on Monday after a late rally.

Overnight on Wall Street, the Dow Jones Industrials Average finished off lows but still shed over 100 points at 12,834, with US stock futures off 0.8% this morning pointing to another down day for Wall Street shares.

Meanwhile, Asian equities dropped to a four-month low today as US President Donald Trump threatened new tariffs on Chinese goods in a ratcheting up of the tit-for-tat trade war between the world’s two biggest economies.

Jasper Lawlor, head of research at London Capital Group commented: “The escalating US-Sino trade spat continues to attract the bulk of investor attention as it moves towards round two."

He added: “Following an initial levy on US$50bnworth of Chinese imports, which prompted a retaliatory measure from China; round two has seen Trump look to up the ante to a 10% tariff on US$200bn of Chinese imports, in the clearest sign yet that these tit for tat measures will continue to escalate until there are some serious economic consequences on the individual countries and to global sentiment.”

On currency markets, the pound remained fairly steady overnight against both the dollar and the euro with no UK economic data due for release today and Brexit worries allayed for now.

Ashtead, Ferguson lead corporate diary

On the corporate front, Tuesday’s batch of news is unlikely to shift the dial too far, with the only blue chip interest set to come from equipment hire firm Ashtead Group PLC (LON:AHT) and plumbing supplies firm Ferguson Plc (LON:FERG).

In a trading update back in April, Ashtead said it was continuing to perform well, with full-year results expected to be in-line with expectations.

Analysts at UBS are expecting the FTSE 100-listed group to report further strong underlying trading in the fourth quarter, with a forecast of 20.5% volume growth, and a weak pound potentially driving upgrades to consensus estimates.

The bank also predicts Ashtead reporting full-year revenues of £3.6bn, with pre-tax profits seen at around £931mln.

Meanwhile Ferguson - which changed its name from Wolseley last year to reflect the bigger prominence of its US operations –should issue solid third-quarter trading news

UBS raised its full-year estimates and price target for the Plumb Center owner in a recent preview to reflect a 6% appreciation in the dollar since its last update in March.

The Swiss bank expects the FTSE 100-listed firm - to report third-quarter organic growth of +7%, driven by organic growth in the US of +9%.  As a result, UBS said, it expects sales of US$5.023bn, underlying earnings (EBITA) of US$337mln, and margins of 6.7%.

High street in fashion

Away from the blue chips, the focus will on the high street, with fashion retailers Footasylum PLC (LON:FOOT) and Bonmarche Holdings PLC (LON:BON) both due to report final results on Tuesday, although their situations look to be different.

Footasylum, which sells own and third-party brand trainers, hoodies and athleisurewear, said back in January revenues in the three months to the end of December 2017 jumped by more than a third to £89.8mln, up from £67.3mln, with trading in line with expectations.

City broker Liberum Capital kicked off its research coverage for Footasylum – which floated in November 2017 - with an effusive ‘buy’ recommendation.

Meanwhile, Bonmarche suffered an 11.1% decline in like-for-like sales for the three months to March, as the UK value womenswear retailer was hit hard by the ‘Beast from the East”.

Although online sales rose 31%, chief executive Helen Connolly described the backdrop as challenging and said more self-help measures were planned for this year.

Significant events expected on Tuesday June 19:

Trading updates: Ferguson Plc (Q3) (LON:FERG)

Finals: Ashtead Group PLC (Q4) (LON:AHT), Accsys Technologies PLC (LON:AXS), Bonmarche Holdings PLC (LON:BON), Castleton Technology PLC (LON:CTP), Flybe Group PLC (LON:FLYB), Footasylum PLC (LON:FOOT), Gresham House Strategic PLC (LON:GHS), Telecom Plus (LON:TEP)

Interims: Benchmark Holdings PLC (LON:BMK)

Economic data: US housing starts

Around the markets:

  • Sterling: US$1.3256, up 0.1%
  • Gold: US$1,278.70, an ounce, up 0.2%
  • Brent crude: US$65.42 a barrel, down 0.7%

City Headlines:

  • Walt Disney is readying an increased offer for 21st Century Fox, adding a cash component to its previously agreed US$52.4bn stock offer for Fox assets – Financial Times
  • JPMorgan fined US$65mln for Trying to Rig Benchmark Rate – Bloomberg
  • Outsourcer Capita has been awarded a Ministry of Defence contract to run British military’s fire and rescue services – Daily Telegraph
  • Shell has hit back at criticism of a tax structure it set up as part of a relocation of its headquarters from London to The Hague following reports that it has cost the Dutch treasury as much as €7bn (£6.1bn) in lost income – The Guardian
  • Fujifilm is suing Xerox for US$1bn in damages for alleged breach of contract after the US photocopier maker called off proposed merger – Financial Times
  • The accounting watchdog, Financial Reporting Council, has released a damning report into Britain's big four accountancy firms, singling out KPMG in particular – The Times
  • Rupert Stadler, Audi’s chief executive, has been detained for questioning in connection with the investigation into the carmaker’s diesel emissions cheating – The Times
  • The Chinese authorities have orchestrated an arms-length rescue for the giant aviation and investment group HNA, heading off a fresh liquidity crunch – Daily Telegraph
  • A “no deal” Bexit could cost US households £1,000 a year, with the impact disproportionately felt by poorer households – Financial Times
  • Ofwat has threatened to take action against Thames Water, Severn Trent, Southern Water and South East Water, saying there is “no excuse” for how they failed to protect their customers from major water shortages in the aftermath of the severe weather earlier this year – Daily Telegraph

 

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