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London open: Miners drag Footise lower amid renewed trade angst
London stocks got off to a shaky start on Thursday as miners felt the heat from the renewed trade tensions between the US and China, with the pound down ahead of the Bank of England meeting later in the day.
The FTSE 100 fell 44.4 points or 0.6% to 7,608.49 after around half an hour of trading, its worst price in more than a fortnight, even though the pound was down almost 0.4% against the dollar to 1.3079 and 0.1% lower versus the euro at 1.1247.
This was despite an interest rate hike being expected when the BoE’s monetary policy committee announces its decision at midday, with the market looking for a 25 basis points increase to 0.75%, the first time the Bank Rate has topped 0.5% in a decade. The MPC will also publish its quarterly Inflation Report.
The MPC vote split and forward guidance will be closely scrutinized, said market analyst Jasper Lawler at London Capital Group. “A close vote and a dovish Carney could see the pound move through $1.3090 towards $1.3045. Meanwhile a more convincing vote split could see the pound target $1.32, whether such a rally would have any staying power would depend on Friday’s pmi figures and Brexit headlines.”
With economic data not wholly supportive of a hike, CMC Market’s Michael Hewson said one thing was certain, that whatever the bank does today it is likely to be criticised.
“We could well see some sterling weakness in any case if the bank is overly dovish in its guidance, or its inflation and growth outlook, as that might suggest that the Bank is not entirely convinced that a rate rise is the right thing to do, but it is important to note that if the MPC fails to deliver today it is unlikely to have the opportunity to do so again much before March next year,” Hewson added.
The weight on the Footsie’s neck was coming from the mining sector as investors continued to fret about the potential effect on demand from China from the White House’s renewed trade tariff threats, including considering hiking import tariffs on $200bn of Chinese goods from 10% to a more confrontational 25%.
Overnight, the trade spat had depressed the Dow Jones and S&P 500, though Apple’s tasty results helped inspire a higher finish for the tech-heavy Nasdaq. The US Federal Reserve made no immediate policy changes but gave bullish signals that another hike is imminent, which boosted the dollar and supported 10 year US treasury yields at around 3%.
“The expectation was for a slightly more hawkish tone from the Fed in their statement and that was exactly what was given,” said Lawler. “No surprises and talk of a strong economy has cemented expectations of a rate rise in September, with a second hike before the year is out, being priced in at 64%.”
In company news, with Glencore, Antofagasta, Rio Tinto, Anglo American, Evraz, Fresnillo and BHP Billiton leading the fallers, iron ore producer Ferrexpo was the biggest loser as it reported stronger revenue but falling profits.
Barclays rose initially as the bank’s underlying performance beat market forecasts but the shares soon fell into the red as first-half profits fell due to £2bn paid out in litigation and conduct charges.
Also moving lower after an initial spike was Aviva as first-half profit fell but the life insurer said conditions would improve and stuck to its target for a 5% rise in full year annual earnings per share.
Corporate services provider Sanne was lower despite reporting that its core business lines had continued to see both good growth in revenues on a constant currency basis, as well as further momentum in securing new business.
Outside the FTSE 350, estate agent Countrywide was another big faller as it announced plans to raise £140m from shareholders to strengthen its finances after losing more than £200m in the first half.
On the upside, Rolls-Royce climbed on the back of improved guidance for full year profits and cash flow, though a £554m exceptional charge was unveiled due to problems with its Trent 1000 aeroplane engine.
London Stock Exchange Group rose as it hiked its interim dividend increased 19% after growth across all business areas led to first half earnings per share increasing 25%.
Business software provider Sage was higher as it said group organic revenue increased by 6.8% in the third quarter, delivering growth of 6.5% in the first nine months of the year as recurring revenue growth accelerated.
Egyptian gold miner Centamin gave its shares some extra glister as EBITDA swelled 16% and full-year production guidance reiterated as revenues came in lower, as expected.
Merlin Entertainments, the operator of attractions including Legoland, Alton Towers and Madame Tussauds, cast a spell over investors as profits declined 14% in its traditionally weaker half of the year but revenues grew 4.5% and it said it was on target to meet full year results.
