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London open: UK can have its fudge and eat it, Brussels reportedly to say
Fresh trade threats from the US administration against Beijing and a weaker-than-expected reading for a key survey on Chinese manufacturing are offsetting the positive news out of US tech giant Apple, sending London-listed stocks sharply lower.
Also lost among the trade headlines was a report in the Financial Times that Brussels was now willing to ‘fudge’ the Brexit negotiations in order to help Prime Minister Theresa May avoid a ‘no-deal’ outcome and to obtain approval in Parliament.
May was set to meet with her opposite number in France, Emmanuele Macron, on Friday.
Overnight, and citing three persons familiar with the deliberations taking place on the Potomac, Bloomberg reported that Donald Trump was pushing for the US to levy tariffs of 25% on an additional $200bn-worth of goods from the Asian giant, instead of the 10% tax previously proposed.
The aim was to secure “certain concessions” and if China agreed then it was possible that the Trump administration would back off from further tariffs.
Be that as it may, as of 0905 BST the FTSE 100 was giving back 51.68 points or 0.67% and trading at 7,697.08.
Also weighing on sentiment, Caixin‘s China factory sector purchasing managers’ index printed at 50.8 for July, which was down from 51.0 for June (consensus: 51.0).
On a more positive note, in after-hours trading in New York on Tuesday, shares of Apple tacked on another 4%, pushing them to a fresh 52-week high and closer to a market capitalisation of $1.0trn.
The manufacturer of the iconic iPhone reported better-than-expected quarterly results and soundly beat analysts’ prediction for an average selling price for its iPhones of $693, flogging them at $724 per unit instead.
Back in UK news, on Wednesday morning Nationwide reported that house price gains accelerated from a 2.0% clip for June to a 2.5% pace in July (consensus: 1.8%).
That came alongside news from BRC-Nielsen that shop price deflation in Britain eased last month to -0.3% from -0.5% in June, as food prices rose more quickly.
Still ahead on Wednesday evening was the US Federal Reserve’s policy announcement, at 1900 BST, although no changes in policy were anticipated given that no press conference was scheduled for after the release of the policy statement.
In the words of analysts at Bank of America-Merrill Lynch: “The August FOMC meeting is likely to be a non-event for the rates market as well, with virtually no chance of an August rate increase but close to a 95% likelihood of a 25bp hike in September.”
Paul Donovan at UBS was in a similar frame of mind, telling clients: “The US Federal Reserve is next in the list of major central banks offering policy pronouncements. The Fed’s policy is painfully transparent to the point of being boring. The Fed says what it will do, slowly and clearly, and then does it. This is not the meeting to raise rates. The comments on the longer term outlook offer the only hope of excitement.”
Of more immediate concern, in the early part of the session the market spotlight will be on the result of IHS Markit‘s key UK manufacturing sector purchasing managers’ index, at 0930 BST.
Later in the session, the focus will shift to consultancy ADP‘s monthly private sector payrolls report in the States, at 1215 BST, followed by the ISM manufacturing sector survey, also in the US, at 1500 BST.
Rio Tinto shares largesse with shareholders
Anglo-Australian mining giant Rio Tinto said first half profits rose 12% as it announced a massive $7.2bn (£5.49bn) in shareholder returns from buybacks and asset sales. Underlying profit for the first six months was $4.42bn as the the interim dividend was lifted by 15% to $1.27 a share.
Smurfit Kappa’s first-half profit jumped by almost half after the corrugated packaging company fought off an attempted takeover by International Paper of the US. Operating profit before exceptional items for the six months to the end of June rose 48% to €529m (£471m) as revenue rose 5% to €4.4bn. Pre-tax profit rose 70% to €416m while earnings before interest, tax and other items increased 27% to €724m.
Trading at Next slowed more than expected in the second quarter as the high street clothing group’s online and overseas sales was not enough to totally offset the persistent decline from its stores. For the 26 weeks to 28 July, full price sales rose 4.5% with online sales growing 15.5% and retail sales down 5.3%. Full year guidance was maintained.
Lloyds Banking Group’s first half profit jumped 23% as the bill for payment protection insurance and other compensation costs almost halved. Pre-tax profit for the six months to the end of June rose to £3.1bn from £2.5bn a year earlier as income rose 2% to £9.5bn. The cost of PPI and other remediation programmes fell to £807m from £1.59bn.
Direct Line saw gross written premiums slip 5% in the first half, it said on Tuesday, to £1.61bn, while direct own brand premiums grew 3.3%, driven primarily by continued growth in motor. The FTSE 100 company said that, normalised for weather, operating profit was up slightly, with the first half also including £49m of benefit from revised Ogden reserve releases. It said a headline decline in operating profit of £56.6m over last year was driven by higher weather-related claims.
