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FTSE 100 closes lower as North Korea tensions spook traders

The FTSE 100 index finished down around 44 at 7,498, above the session low of 7,475.83, but unable to reach the opening peak of 7.542.73
City skyline
After notching up a long run of record gains, the Dow Jones beat a retreat today
  • FTSE 100 index closes at 7,498

  • US stocks retreat on North Korea tensions

  • Gold up on safen-haven buying

 

 

FTSE 100 closed over 44 points lower as traders were put off shares in the wake of rising tensions between the US and  North Korea.

"European stocks have suffered greatly today as traders were prompted to cut-and-run due to the escalating tensions between the US and North Korea," said David Madden, analyst at CMC Markets.

"The stand-off between the two countries has encouraged dealers to dump stocks and seek safe haven investments like gold. While the two nations are at loggerheads, it is going to be difficult to imagine money flowing into stocks."

FTSE 100 closed at 7,498, while FTSE 250 was over 74 points lower at 18,875.

In the US, the benchmarks are also having a weak showing. The S&P 500 is off 0.39% to 2,471, while the Dow Jones Industrial Index is down 0.24% at 22,032.

Miners, often  winners, during geopolitical tension, were big gainers on Footsie.

The silver giant Fresnillo plc (LON:FRES)  added 4.89% to 1,544p, while Randgold Resources (LON:RRS) added 2.79% to 7,380p.

Security and outsourcing giant G4S plc (LON:GFS) lost 7.4% to 305.90p after it reported a 7.6% rise in first-half profit amid worries about growth in emerging markets and further asset sales.

3.15pm: Caution prevails

The Footsie stayed weak, but held off session lows in late afternoon trading as US stocks opened lower amid the rising military tensions between the US and  North Korea.

Around 3.00pm, the FTSE 100 index was down 44 points at 7,498, above the session low of 7,475.83, but unable to reach the opening peak of 7.542.73.

In early trade on Wall Street, after notching up a long run of record gains, the Dow Jones beat a retreat today, shedding 0.3%, or 68 points at 22,017, with the broader S&P 500 index also falling 0.3%, and the tech-laden Nasdaq Composite losing 0.6% impacted by some disappointing earnings as well, notably after-hours yesterday from Priceline Group Inc (NASDAQ:PCLN) and Tripadvisor Inc (NASDAQ:TRIP).

Predominantly, however, investors were worried after North Korea’s leader Kin-un Jong threatened a missile strike on a US military base on Guam after President Donald Trump said he would act with “fire and fury like the world has never seen” if the Asian country doesn’t stop its threats.

Michael Hewson, Chief Market Analyst at CMC Markets, said: “Rising tensions on the Korean peninsula are nothing new, they have been a staple for investors for several years now, but this flare-up has the potential for a policy misstep, more so because of the inexperience of the person occupying the White House, and a tendency to conduct policy by way of tweet and press conference.

“This may explain why financial markets have adopted a safety first approach to events over the last twelve hours.”

Defence contractor BAE Systems PLC (LON:BA.) was a gainer on the sabre-rattling, adding 0.8% at 580p, while defensively-perceived  stocks such as United Utilities PLC, up 1.2% at 931p and Severn Trent PLC (LON:SVT), ahead  0.9% at 2,304p also saw demand.

Financial stocks were the biggest fallers on the market falls and global worries, with emerging markets-focused lender Standard Chartered PLC (LON:PLC) shedding 2.5% at 784.1p and wealth manager St James’ Place Capital PLC (LON:STJ) losing 2% at 1,204p.  

1.00pm: Sabre-rattling creates worry

The FTSE 100 index steadied near lows in lunchtime trading awaiting expected opening falls today on Wall Street as investors fret over rising tensions between the US and  North Korea.

Around 12.45pm, the UK blue chip index was about 63 points lower at 7,479, just remaining the early session low of 7,475.43.

US stock futures pointed to opening falls by all three US benchmarks on Wednesday, albeit with the indices having had a long run hitting all-time highs.

Investors were worried after North Korea’s leader Kin-un Jong threatened a missile strike on a US military base on Guam after President Donald Trump said he would act with “fire and fury like the world has never seen” if the Asian country doesn’t stop its sabre-rattling.

Joshua Mahony, market analyst at IG, said: “A week of low volatility has been hit with an unexpected rush to safe havens as the US-North Korean feud has ratcheted up once more overnight.

“No sooner had Trump warned of ‘fire and fury’ in the event of further threats from North Korea, than the breakaway nation responded with exactly just such a threat, announcing plans for a potential attack on the US airbase in Guam. “

The analyst added: “The unpredictable nature of North Korea means it is hard to gauge exactly how likely an attack is, yet given the military power of both nations, there is no surprise we are seeing markets shift out of risk assets and into havens such as the yen and gold.

“With the height of the 2007 crisis falling 10 years ago, the threat  of a nuclear conflict represents the best chance we have of another market crash.“

Gold in demand

As gold prices jumped on safe-haven buying, FTSE 100-listed precious metal groups topped the leader board, with Fresnillo PLC (LON:FRS) and Randgold Resources PLC (LON:RRS) up 2.9% to 1,515p and 2.5% to 7,360p respectively, while second liner Aciacia Mining PLC leapt 8.7$ higher to 191.6p.

Outsourcing firm G4S PLC (LON:GFS) was the biggest FTSE 100 faller, down nearly 5% at 314.2p despite reporting a 7.6% rise in first-half profit amid worries about growth in emerging markets and further asset sales.

Among the small caps, Tasty Plc (LON:TAST) shares dropped 16% to 42p after the Wildwood and Dim T restaurants operator said trading in the first half was below its operations as profit fell sharply.

The AIM-listed group said trading across its businesses was below the revised expectations set out in March, due to a "challenging" trading environment in the UK restaurant sector.

But Amur Minerals Corporation (LON:AMC) was the market’s top gainer, soaring 23% higher to 8.8p to on follow-through buying after it told investors yesterday that it has the first batch of findings from lab analysis of samples from its Kun Manie nickel project in Russia had confirmed earlier positive drilling results.

Meanwhile, it added, a second batch of results is presently under management review following receipt from the lab and a third batch is still undergoing lab analysis.

11.55am: 10th anniversay of financial crash trigger

The market’s drop today comes on the 10th anniversary of the trigger for the financial crash, when French lender BNP Paribas became the first big bank to warn over sub-prime risk.

At 11.55am, the FTSE 100 index was down 54 points at 7,488, just below the early session low of 7,475.43.

Steve Wilcockson, financial services industry lead at MathWorks, commented: “Hindsight is a great thing. Ten years ago today, BNP Paribas was the first major bank to acknowledge the risk of exposure to the sub-prime mortgage market, and looking back we can attribute the financial crisis in part to model complexity and systemic obfuscation in the usually valuable derivatives and credit markets.”

He added: “A decade on, regulators and banks have tackled those problems well, but the industry now heads into a new bubble of artificial intelligence, even bigger data, crypto-currencies, robo-advisors and a proliferating patchwork of confusing, unsourced and often poorly-supported computer languages, putting the international population at risk of experiencing new global financial and economic crises.”

11.40am: Gold strong, but bitcoin stronger

Although the gold price rose nearly 1% higher today to around US$1,267 an ounce in response to safe haven buying on the increased tensions between North Korea and the US, the value of crypto-currency Bitcoin is now nearly three times that price.  

The value of a single Bitcoin hit a record high above US$3,500 on Tuesday Morning, having more than tripled in value for the year.

By comparison, the gold price is only up around 10% for 2017, although the market in the yellow metal is worth trillions, while bitcoin's market capitalisation is only about US$57bn.

11.00am: History Lesson

Neil Wilson, senior market analyst at ETX Capital said: “During the Cuban missile crisis the S&P 500 was pretty steady throughout October so the stock market is not always a great guide to impending nuclear war.

“But the index had already cratered by about 28% in the six months leading up to the crisis (The Kennedy Slide) so maybe had already priced in the potential for a Cold War miscalculation to a large extent.

“Conditions today are very different with a near-decade long bull market leaving valuations extremely high. A sPark from the Korean peninsula – even if it fizzles out and doesn’t lead to war - could yet set off a correction, particularly given the time of year.”

At 11am, the FTSE 100 index had droped 62 points 7,480, back close to the early session low of 7,475.43, having gained 10 points yesterday.

Outsourcing firm G4S PLC (LON:GFS) was the biggest FTSE 100 faller, down nearly 5% at 314.2p despite reporting a 7.6% rise in first-half profit amid worries about growth in emerging markets and further asset sales.

9.50am: Mood remains depresssed

The Footsie stayed weak as the morning session progressed, giving back recent gains with investors unnerved by increasing tensions over the actions of North Korea, with the rogue state's leader having threatened a missile attack on a US air base on the Pacific island of Guam.

Around 9.50am, the FTSE 100 index was down 48 points at 7,493, just holding off the session low of 7,475.43, having gained 10 points yesterday.

Currency markets were more sanguine, however, about the seemingly outrageous posturing by Kim Jong-un and US President Trump's strong reaction, with sterling just edging 0.1% higher versus the dollar at US$1.3003, and up 0.3% against the euro at €1.1088.

Naeem Aslam, chief market analyst at Think Markets UK Ltd said: The geopolitical tensions have prompted a risk off trade amid investors. The president Trump's comments about North Korea have created nervousness and the fear is if the president really means what he said 'fire and fury'.

“The typical text book trade is that investors rush for safe haven hence we have experienced a bounce for the gold price.”

Thus, among the handful of FTSE 100 gainers early on, were gold producers Fresnillo PLC (LON:FRS) and Randgold Resources PLC (LON:RRS) up 2.2% to 1,504p and 2.0% to 7,320p respectively.

Among the small cap gainers, Trinity Exploration & Production PLC (LON:TRIN) gained over 13% at 11.75p after it told investors it has seen a step-change in its financial performance, delivered during a period of transition.

In an operational update ahead of interim results, due September 25, the company said that it continued the upward trajectory in production into the second half.

And Jubilee Platinum PLC (LON:JLP) added 12% at 4.15p as it revealed it has executed a US$50mln project funding agreement to support its metals recovery business.

The company highlighted that the deal is structured at project level to minimise dilution and enhance shareholder value.

8.40am: Sabre-rattling unnerves

Images of American B1-B supersonic bombers flanked by F-16 fighters departing Guam unsettled the markets a tad.

Muscle flexing by the US and some frankly barmy rhetoric from Kim Jong-un led to a broad based sell-off in Asia that was mirrored here in the UK.

“North Korea has been a worry simmering in the background for a long time but with its more advanced weapons and Trump ready to act in the White House, it could bubble over anytime,” said London Capital Group's Jasper Lawler.

“The threat from North Korea seems to have jolted investors out of their summer slumber.”

Indeed it has with the index of blue-chip shares down around 44 points at 7,499.08 shortly after the open.

The haven stock of the morning was Randgold Resources PLC (LON:RRS), miner of (you guessed it) gold, which tends to be sought after in times of turmoil. Randgold shares were up 1.5%, in line with the price of the precious metal.

Traders weren’t particularly enamoured of half-year results from security firm G4S (LON:GFS), with the stock down almost 3% on the back of its latest figures.

The day’s early riser was Jubilee Platinum (LON:JLP), which rocketed 17% after concluding a project financing deal that minimises dilution for equity investors. 

Proactive news headlines:

Yosi Fait, finance director of Telit Communications Plc (LON:TCM), is to serve as interim chief executive officer while Oozi Cats takes a leave of absence, pending the outcome of an investigation into US indictments relating to Cats that pre-date the establishment of Telit.

Motif Bio Plc’s (NASDAQ:MTFB, LON:MTFB) iclaprim next-generation antibiotic  has moved a step closer to potential commercialisation after the last patient finished their treatment in the REVIVE-2 phase III trial. The study is investigating the safety and efficacy of iclaprim in patients with acute bacterial skin and skin structure infections (ABSSSI).

Trinity Exploration & Production PLC (LON:TRIN) told investors it has seen a step-change in its financial performance, delivered during a period of transition. In an operational update ahead of interim results, due September 25, the company said that it continued the upward trajectory in production into the second half.

Jubilee Platinum PLC (LON:JLP) told investors that it has executed a US$50mln project funding agreement to support its metals recovery business. The company highlighted that the deal is structured at project level to minimise dilution and enhance shareholder value.

PowerHouse Energy Group PLC (LON: PHE) has started demonstrations of its waste-to-hydrogen technology at the Thornton Science Park ahead of an expected full week of operation in September. The green energy group will collect data from a variety of sources integrated throughout the G3-UHt unit during this demonstration phase and this information will be used in the design of a first commercial unit.

Empyrean Energy PPC (LON:EME) updated investors on the operations on the Dempsey 1-15 well, in the Sacremento basin in California, where it says drilling is going to plan.

Improved vanadium prices have given a lift to Bushveld Minerals Limited’s (LON:BMN) recently acquired associate, Vametco. Bushveld, which acquired an effective 35% stake in Vametco in April, said interim underlying profits at the South Africa-based miner climbed to R85.5mln (£4.9mln) or 80% more than the whole of 2016.

Mobile messaging specialist Zamano Plc (LON:ZMNO) said it plans to sell its PSMS arm, its remaining business, as part of the wind down of the company. It is speaking to a number of potential buyers, and said it is close to concluding a deal with a preferred party.

Haydale Graphene Industries (LON:HAYD), the advanced materials group, has established operations in Taiwan. Haydale Technologies (Taiwan) will operate as a dedicated producer and sales outlet of graphene-based conductive inks and pastes, including other functional and specialty inks and pastes.

6.45am: Tensions rising

UK stocks are set to open lower against a backdrop of rising tension between the US and North Korea,

Spread betting quotes point to the FTSE 100-share index opening at around 7,507 after it added 11 points yesterday to close at 7,543.

A spokesman for the Strategic Force of the Korean People's Army said on Wednesday that it was considering a strike on a military base in Guam.

It is unusual for a military commander to give advance warning of an attack, so it is to be hoped that this is just posturing in response to sabre-rattling in North Korea's direction yesterday from President Donald Trump.

Unsurprisingly, Asian markets did not react well to it all kicking off on their doorstep. In Japan, the Nikkei 225 was down 278 points (1.4%) at 19,718 while in Hong Kong the Hang Seng was 199 points (0.7%) lower at 27,656.

US markets, meanwhile, closed lower yesterday, with the Dow Jones down 33 (0.2%) at 22,085 and the broader-based S&P 500 off 6 points (0.2%) at 2,475.

On the home front, a reasonably busy corporate schedule is in prospect, with insurers Legal & General Group PLC (LON:LGEN) and Hastings Group PLC (LON:HSTG) among those reporting.

With L&G, investors are likely to turn their focus on the outlook for the pension de-risking business when the financial services firm reports its first half earnings on Wednesday.

At the group’s capital markets event last month, it said its investment management arm generated £16.8bn of net inflows and had assets under management of £950bn. The bulk annuity business had completed deals worth £1bn, with a UK pipeline of over £12bn.

“That reduces the chances of an unpleasant surprise waiting in next week’s numbers,” said Hargreaves Lansdown.

“However, with no major bulk annuity deals announced in the quarter, commentary around the outlook for the lumpier pension risk transfer business will be a key focus.”

Shareholders are also likely to look out for any Brexit contingency plans given its predominant UK exposure.

Around the markets

  • Sterling: US$1.2985, down 0.08 cents
  • Yield on 10-year gilt: 1.151%
  • Gold: US$1,274.40 an ounce, unchanged
  • Brent crude: US$51.92 a barrel, down 22 cents

Business headlines

Financial Times

US oil producers reassured by assurances from Kazakhstan

Private equity veteran Guy Hands looking to raise US$3.4bn for new buy-out fund

Union strike sends Hyundai shares sliding

Author of controversial gender memo sacked by Google

The Times

Fight goes on to extend deadline for PPI claims: A compensation claims company has vowed to fight on after it lost the first round of a legal battle to extend the deadline for claiming compensation on mis-sold payment protection insurance.

Brexit forces Prudential Regulation Authority to sideline other tasks: The City regulator in charge of preventing financial crises has warned that the “material extra burden” of planning for Brexit will force it to put other work on the back burner.

Mystery of Air India artworks that have vanished off the radar: Troubles keep stacking up for Air India. Amid tales of financial mismanagement emerging from the national carrier, and as vultures circle in on a possible fire sale, it has emerged that the company has lost an unknown number of artworks from a collection valued at more than £200mln.

Chinese aluminium cutbacks lift price over $2,000 a tonne: Aluminium was pushed above $2,000 a tonne for the first time in three years after the Chinese authorities cut production as part of an environmental crackdown.

British factory standards ‘worse than Asia’: Many of Britain’s clothing factories have worse ethical standards than manufacturers in China, Bangladesh and Burma, the boss of one the UK’s biggest fashion retailers has claimed.

Germany’s surplus is on the rise: Germany’s trade surplus widened to a ten-month high in June at a time when the country faces pressure from the US and Europe to rebalance in favour of imports and investment.

Outgoing Paddy Power Betfair chief Breon Corcoran admits tech plan was disruptive: Corcoran said if the bookmaker had known how disruptive integrating the merged company’s technology platforms would be it might have delayed the project.

Slowdown in China raises trade fears: Growth of China’s imports and exports eased in July, raising concerns that global trade with the world’s second largest economy is starting to slow.

IWG office expansion unsettles investors: The biggest serviced office operator in the world may be boosting its global presence to cater for the boom in short-term shared office space but investors did not take kindly to such expansion hitting profits.

The Independent

Bank of England covered up failure of 1914 fund-raising effort: The Bank of England covered up a failure by the government of the day to raise enough money from private investors to fund a major borrowing programme at the outset of the First World War, new research has uncovered.

Airbnb and New York hotels clash over ‘fear-mongering’ YouTube video: Airbnb has long irked the hotel industry since it started over a decade ago. It seems the conflict between traditional hotels and the homes-rental start-up may have worsened.

BMW allies itself with engineers as doubts of self-driving cars arise: BMW and Daimler, the world’s top luxury car makers, have announced alliances with suppliers, talking up the virtues of having a bigger pool of engineers to develop a self-driving car.

Broadcasters in UK seeking Amsterdam offices as Brexit talks stall: At a glass-wrapped industrial estate in London north of the River Thames, Brexit is giving global broadcasters a headache.

RBS boss tells fraud victims to take more care and not expect a refund: The boss of the Royal Bank of Scotland has reportedly warned that victims of bank fraud should not expect automatic refunds.

Employers struggling to recruit staff as vacancies see less candidates: Employers are facing ever more difficulties in recruiting staff as the number of candidates for jobs shrinks in the UK due to Brexit.

Dutch authorities begin testing chicken meat as contaminated eggs scandal widens: Dutch authorities have reportedly started testing chicken meat originating from farms found to have produced eggs contaminated with insecticide.

The Daily Telegraph

FT journalists revolt over colleague’s sacking: The Financial Times faces newsroom unrest after it allegedly sacked a journalist who had been on unpaid leave without warning or compensation.

Murdochs face more delays and scrutiny of Fox News in £11.7bn Sky takeover: The Government has erected a new obstacle to the Murdoch family’s pursuit of full control of Sky, after asking the media regulator to look again at 21st Century Fox’s record as a broadcaster.

Businesses urge ministers to give them clarity on post-Brexit industrial strategy: Industry is calling for clarity from the Government over the nascent industrial strategy or risk one of the key planks of Conservative policy failing.

Success of pricing strategy leaves Pets at Home investors purring: Pets at Home shares leapt by almost 8% after the company revealed that its efforts to lower prices was encouraging shoppers to return to its stores.

Diageo boss sees pay drop a third in 2017 after missing long-term performance targets: The boss of drinks giant Diageo has seen his pay drop a third after failing to hit targets linked to the long-term performance of the company.

Rotork’s flat results bear out decision to revamp management: Rotork, the engineering business that dumped its chief executive two weeks ago because of lacklustre performance, has reported flat sales at the half year mark.

Chinese firm Alibaba to open a ‘car vending machine’ next year: Chinese e-commerce company Alibaba is to open its own car “vending machine” next year in a bid to make buying a car “as easy as buying a can of Coke”.

The Guardian

Bank of England warns Brexit will put strain on regulatory resources: The Bank of England has warned that the task of regulating the City after Brexit will put a strain on its ability to police the financial sector.

Sky set to retain live Football League rights in £180mln-a-year deal: Sky is set to retain the rights to the Football League in a blockbuster bidding battle with BT that has seen the price as much as double to £180mln a season.

Ed Sheeran’s Divide puts Warner Music’s streaming income on track to cross £1bn: The popularity of Ed Sheeran and his latest album, Divide, helped drive a 58% increase in streaming revenue for Warner Music, putting it on track to make more than $1.3bn (£1bn) from digital services including Spotify and Apple Music this year.

Pensioners living in golden era as income rise outstrips workers’: Pensioners enjoyed a golden era between 1977 and 2016, with official figures revealing that their incomes have nearly tripled in real terms, rising much faster than the incomes of working people.

Mazda boosts petrol engine efficiency in fresh blow to diesel: One of the world’s largest automotive firms has hailed a technological breakthrough for the petrol engine, in an engineering twist for an industry racing to embrace the electric car.

Daily Mail

Virgin struggles in plan to supply high speed broadband to 800,000 homes: A £3bn plan to give super-fast broadband to 800,000 homes is around 571,000 short of hitting its target after being blighted by disputes with councils and management problems.

Daily Express

Lonmin to sell surplus platinum capacity as it steps up cash-raising efforts: Lonmin is to sell surplus platinum capacity as it steps up cash-raising efforts to combat higher costs.

Bitcoin hit fresh record high of $3,500 - with value up 264% in 2017: Bitcoin’s price has surged to a fresh record high amid a change to the block-chain technology that underpins the crypto-currency.

Banks pushed to the brink amid Saudi stand-off, warns Moody’s: Qatar’s banking system is facing huge pressure as growth slows over the crisis with neighbouring Saudi Arabia, credit rating giant Moody’s said.

Anger grows at Italian banks bailed out with taxpayers’ cash: The European Union has failed to update and tighten its regulations on when governments can pump money into their failing banks, meaning taxpayers are bailing out failed financiers, a top Brussels regulator has warned.

City AM

Missed expectations cause Tripadvisor (NYSE:TRIP) shares to sink: Tripadvisor’s shares have tumbled around 7% after the travel company missed analyst estimates in the second quarter.

Time Inc posts weaker revenues but shares rise as it targets $400mln in cost savings: Time Inc revealed lower than expected revenue for the second quarter as advertising sales dropped, but the publisher’s shares rose after it announced it is targeting $400mln (£308mln) in cost savings. 

 

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