FTSE 100 closes down 217 points
The arrest of Huawei's CFO in Canada sparks fears that US-Sino relations will deteriorate further
US stocks also down
FTSE 100 suffered its worst day in more than two years as European and US indices sank too.
Investors have been put off shares by trade worries, Brexit anxiety and now news that the finance chief of one of China's biggest tech firms Huawei Meng Wanzhou , had been arrested in Vancouver, Canada.
She now faces extradition to the US. She is the daughter of company's founder Ren Zhengfei. The arrest has escalated fears over rising tensions on US/China trade relations.
Footsie closed down 217 points today to 6,704, with 7,000 now seemingly a distant memory. It is the largest one day point decline since August 24, 2015.
FTSE 250 also plunged - shedding 517 points at 17,753.
On Wall Street, the Dow Jones Industrial Average is down over 418 points at 24,608, while the S&P 500 is down nearly 37 points at the time of writing.
David Madden, at CMC Markets, said investors were worried the relationship between the US and China has been strained by the arrest of Meng Wanzhou, the CFO of Huawei.
"The US-China relationship was moving in the right direction after the G20 summit, and now dealers feel all the good work could be undone," he said.
"It is a broad based sell-off that we are seeing in London, as mining, energy, financial and consumer stocks are all lower."
3.45pm: Footsie knocked for six
The Footsie was knocked for six today by fears that the gloves could come off again in the trade war between the US and China.
The FTSE 100 was down 191 at 6,730, its lowest point of the day.
Adrian Lowcock, head of personal investing at Willis Owen, observed that the top-shares index was poised for its worst day since the 2016 brexit vote.
“Optimism over a ceasefire in the US-Chinese trade war has proven very short-lived with the arrest of Huawei’s CFO in Canada, putting a reconciliation in greater doubt. Investor sentiment has swung downwards with concerns that a revived trade war could impact global growth, which has already begun to slow,” Lowcock said.
“In addition, the UK market has to contend with the ongoing Brexit saga, the uncertainty of which has put investors off even further.
“The FTSE 100 has already entered correction territory having fallen over 12% since May 2018, with a further 2.2% fall so far today; however, the UK market looks good value, especially when compared to some of the more expensive developed markets, and is arguably the most unloved stock market at the moment but it is times like these, when it feels very uncomfortable to invest, that some of the more attractive opportunities can present themselves to patient long-term investors,” Lowcock suggested.
2.45pm: The Footsie's rally proves short-lived
As expected, US markets took a bath at the outset, nipping the Footsie’s half-hearted rally in the bud.
In the US, the Dow was down 439 (1.75%) at 6,738 and the S&P 500 was down 44 (1.66%) at 2,655, to a certain extent playing catch-up with other global markets after US markets were closed yesterday to mark the death of former president, George H Bush.
The FTSE 100 hit a new low for the day, down 191 (2.77%) at 6,747.
The shares rose 63p to 1,530p after it reported a 0.2% decline in revenue for the 16 weeks to December 1 as lower wholesale sales offset growth in retail sales. At constant exchange rates, sales fell 0.4%.
“The trading statement is something of a sideshow given recent allegations and, in any event, echoes much of what was reported at the half-year report in October. The retail division’s performance is bearing up, with a strong contribution from the online business, with wholesale under some pressure as anticipated. The company had already guided that the second half of the year would remain challenging, although not necessarily for the reasons which have subsequently unfolded,” opined Richard Hunter at interactive investor.
“The shares are now down 43% over the last year, as compared to a 7.9% fall for the wider FTSE250. This has resulted in some scant consolation to investors in the form of the dividend yield, which currently stands at 4.2%. Meanwhile, recent events have given rise to concerns that the 35% stake held by the founder and chief executive could be disposed of and, whilst extremely unlikely at this stage, this would nonetheless provide a large overhang on the stock,” Hunter added.
Nick Bubb, the independent retail analysts, was in self-congratulatory mood, observing, “Ahead of the much-awaited Ted Baker Q3 update today (for the 16 weeks to Dec 3rd), we flagged that the better than feared trading update from Joules yesterday provided some encouragement that Ted Baker’s trading update might also not be as bad as some had feared, despite the recent share price slump…And the headline of the statement is bullish.”
“A 0.4% fall in total sales (at constant currency) is way less than the City was hoping for, even if much of the shortfall can be attributed to the phasing of Wholesale deliveries. Retail sales were down about 3% LFL [like-for-like], but the company points to better trends in the last 8 weeks, thanks to more seasonal weather,” Bubb said.
ContoueGlobal PLC (LON:GLO) was another mid-cap to defy the trend, rising 0.1% on the back of the sale of a 49% interest in the company's 250 megawatt concentrated solar power facilities in the south-west of Spain to a fund advised by Credit Suisse Energy Infrastructure Partners.
1.15pm: US markets to resume trading with a bit of catching up to do
Another day of deep decline looks in store for US stocks but at least UK stocks have dragged themselves off their knees.
The FTSE 100 was down 151 points, or 2.18%, at 6,771. For a while it dipped below 6,750 for the first time in two years.
“There’s a slew of US economic data due for release in the hours ahead, with a series of numbers having been held over from Wednesday, too,” noted James Hughes at AXI Trader.
“Composite PMI is expected to show a modest decline, but anything that looks more marked has the potential to rattle sentiment further. ADP Payrolls are also expected to show reasonably strong job creation, although at a pace that’s below recent highs. The Opec meeting is also due to take place today so that could inject some volatility into oil prices, especially if Saudi Arabia and Russia act in tandem.
“Ahead of the open, we’re calling the DOW down 340 from Tuesday’s close at 24,687 and the S&P down 33 at 2667,” he added.
David Jane at fund management group Miton did little to alleviate the gloom by declaring that with the end of the quantitative easing (QE) era, the age of uncertainty is back.
“For many years financial markets have had a very benign backdrop. The era of QE put a floor under bond markets, forward guidance gave certainty over future US interest rates and we had a relatively predictable political order. Combining this with a growing economy and ultra-cheap money, may have given rise to a huge degree of complacency in financial markets, or irrational exuberance as it was once termed,” Jane commented.
“It feels like this era has now ended and the cynics are in the driving seat once again. Credit spreads are again on the rise, the yield curve is flattening, and equities are having a torrid time. Arguably, we’ve been building toward this for some time with some equity markets peaking towards the start of the year, while the high growth technology stocks continued to make new highs. Now even this area of the market seems to have taken a significant turn for the worse, leading to the situation where 90% of asset classes have lost money this year,” he added, presumably before popping off to ye olde sweete shoppe to buy some humbug ahead of Christmas.
“A good sense for the tone of markets can be seen from their reaction to recent ‘news flow’. A slightly more doveish signal from Fed Chair Powell, implying rates were close to neutral and future moves would be data dependent, rather than rigidly following the forward guidance. While the initial reaction was positive, the market subsequently has decided this news increases uncertainty and is negative after all. A year ago, this statement would have been taken as unambiguously positive. Similarly, the positive noise on China-US trade negotiations initially led to a huge rally, but this was quickly erased as market participants decided there wasn’t enough detail.
“In this environment, we feel it’s not a time to take aggressive positions and, in particular, to avoid situations which require a high degree of confidence to support their valuations. We prefer areas supported by hard assets and cash flow in preference to high debt levels or belief in the future. This has led us to sell most of our remaining ‘growth’ positions; we already had very few situations with high debt burdens, outside of utilities and infrastructure. Looking ahead we would like to see a much more settled tone and a clearer outlook before putting significant amounts of risk back into portfolios,” he concluded.
Investors have not needed much excuse to sell equities today but may were given extra impetus by broker comment.
Betting outfit GVC Holdings PLC (LON:GVC) shed 26p at 696.5p after HSBC cut its price target to 985p from 1,135p. Sector peer Paddy Power Betfair plc (LON:PPB) was down 3.3% at 6,540p after HSBC lopped 650p from its price target; the new price target is 6,350p.
11.15am: The Footsie pulls out of its nose-dive
The Footsie has just stabilised at around 6,740 after spending the first two hours of the session heading south.
The top-share index was eight points above its low point for the day at 6,740, down 182 points.
“Stocks have sold-off severely this morning as traders are worried that US-China relations have deteriorated. The arrest of Huawei CFO, Meng Wanzhou in Canada over the weekend has rattled investor confidence, and she could face possible extradition to the US. There is talk that Huawei might be have broken US sanctions in relation to Iran. US-China relations were on the mend after the G20 summit over the weekend, and now the arrest might have thrown a spanner in the works,” said David Madden, a market analyst at CMC Markets.
Meanwhile, oil prices continued to slide ahead of today’s Opec meeting. West Texas intermediate was down 4.2%, or US$2.23, at US$50.64 a barrel while Brent crude was down 4.4%, or US$2.74, at US$58.82 a barrel.
The stakes are now high for Opec, reckons Neil Wilson at Markets.com.
“Crude prices skidded lower on OPEC meeting day as Saudi Arabia’s energy minister Khalid al-Falih said there was a real risk that there will be no cut to production,” Wilson said.
“Brent has fallen just shy of the November 29th low below $58. Look for this to hold until we know precisely what comes out of OPEC.
“Whilst the comments are significant coming from the de facto OPEC leader, we would still assume that OPEC will agree a curb to output.
“OPEC meetings are always rife with these kind of rumours and misdirection and it is wise to try to cut through the noise. The Saudis may well be talking up this risk as part of the game to get the other OPEC members and non-member allies on side,” he continued.
“A smaller than expected cut to output is a distinct possibility, especially if Russia doesn’t go as far as hoped. The Saudis can do a lot themselves though, particularly given the recent summer surge, however there is real pressure on them from the US.
“Certainly the cartel had to go above and beyond the 1m bpd [barrels per day] cut, to at least 1.4m, to really steady the ship. Anything below 1m bpd would be a disappointment and would likely lead to a breach of the $58 level for Brent on the downside, calling for a retreat to the Oct 2017 lows around $55. If OPEC disappoints Brent could be back at $50 by year end,” Wilson speculated.
#Saudi and Russian #energy ministers have been massaging expectations down ahead of today's #OPEC meeting in Vienna in what looks like a coordinated campaign to improve the market reaction later when a modest production cut in announced— Christopher Johnson (@chris1reuters) December 6, 2018
So far, so good ...#OOTT #Brent #WTI #Iran pic.twitter.com/4k3dKcoeI1
US financial services provider State Street Corporation (NYSE: STT) has published the latest findings from its Brexometer Index, a quarterly pulse survey of institutional investor sentiment on the economic impact of Brexit.
“After appetite for UK assets rose to a record high in Q3 2018, the Q4 2018 survey has brought a slightly more muted response from investors, with those intending to increase their holdings falling to 15% from 21%. Consequently, the proportion of investors looking to decrease their holdings of UK assets remained unchanged at 20% in Q4,” State Street said.
Of course, that was before yesterday’s shake-out and today’s.
As is usually the case on a day of market turmoil, defensives were in fashion. Booze seller, Diageo plc (LON:DGE), fags makers Imperial Brands PLC (LON:IMB) and British American Tobacco plc (LON:BATS), fast-moving consumer goods pedlar Unilever plc (LON:ULVR), precious metals miner Randgold Resources Limited (LON:RRS) and utilities National Grid PLC (LON:NG.), Centrica PLC (LON:CNA) and Severn Trent PLC (LON:SVT) were all sporting modest gains.
10.00am: It will get worse before it gets better
The Footsie’s fall is gross – 144 points worth, in fact.
Smith’s shares were off 2.9% at 317p after it said it was mulling a sale of its plastics division.
READ DS Smith exploring the sale of Plastics division as it posts a jump in first-half profit with more boxes sold at higher prices
“On paper, it is hard to find any major faults with DS Smith’s results. There is growth in first-half adjusted operating profit, dividends and return on sales. Market demand remains strong for packaging to service the e-commerce boom,” said Russ Mould, the investment director at wealth management firm AJ Bell.
“So why has its share price fallen on the results? There are three potential reasons. The first is that higher polymer prices have hurt profitability in its plastics division, which has now been put up for sale. Second, investors, in general, seem to be increasingly worried about the pace of global economic growth.
“DS Smith is highly leveraged to global economic activity and any slowdown in spending by consumers and businesses could have negative consequences for packaging demand.
“That leads us on to the third reason. Corrugated box volume growth has actually slowed down in the half-year period, rising by 3.2% versus 5.2% growth reported in its previous full financial year. This may have spooked investors and led them to fear that DS Smith’s purple patch is coming to an end,” Mould opined.
8.30am: Drop back
The Footsie dropped like a stone in early deals after a shake-out this morning in Asian markets.
The FTSE 100 was down 83 points at 6,839, as concerns persist over a global economic slowdown from a US-China trade war.
“The latest bout of anxiety stems from the arrest and planned extradition from Canada to the US of the CFO (and founder’s daughter) of Chinese telecom giant Huawei, on allegations of breaching Iran sanctions and suspicions of cyber-espionage,” commented Mike van Dulken and Artjom Hatsaturjants at Accendo Markets.
“Having swung between optimism and scepticism about a US-China trade war truce through February, and we note Chinese diplomats making positive noise overnight (‘friendly and candid atmosphere’ between Xi and Trump), traders are understandably cautious,” they added.
Ahead of today’s big Opec meeting, Brent crude for February delivery was down 38 cents (0.62%) at US$61.18 a barrel.
Proactive news headlines:
Eland Oil & Gas PLC (LON:ELA) has revealed the latest results of the Ubima-1 appraisal well which effectively opens up additional source of production and revenue for the company. The Nigeria focussed oil company, in a stock market statement, reported that the E1000/E2000 reservoirs produced between 900 and 1,000 barrels of oil per day in testing.
Steve Couldwell, the chief executive of regenerative medicines specialist Tissue Regenix Group PLC (LON:TRX), is take a temporary leave of absence early next year in order to undergo medical treatment.
Rose Petroleum PLC (LON:ROSE) confirmed it is lined up to drill a well in the first quarter of 2019 after it agreed an updated operational plan with the Utah Bureau of Land Management. As part of the agreement the boundary of the Gunnison Valley Unit (GVU), in the Paradox Basin, has been extended to include acreage acquired by Rose earlier this year. Big Pic in July.
Sativa Investments PLC (NEX:SATI) has appointed an award-winning pain medicine and anaesthetic consultant to its medical cannabis advisory board. Matthew Brown is a consultant at the Royal Marsden hospital in West London and recently published research into using cannabinoids for cancer pain treatment. Big Pic in October.
Afritin Mining Limited (LON:ATM) said the first large-scale blast has taken place at its Uis tin mine in Namibia. Big Pic in July.
Base Resources Limited (LON:BSE) (ASX:BSE) announced that it has been granted a prospecting license for the Vanga area in Kenya. The group said the Vanga license is valid for three years and covers an area of 136 square kilometres, extending south-west from the company’s existing Kwale Operation towards the Tanzanian border. Big Pic in August.
Cabot Energy PLC (LON:CAB) has told investors that new measures by the Alberta authorities to cut-back crude production in the short-term won’t impact its business. The regional government has this week revealed it will mandate a reduction in oil production by 325,000 barrels of oil per day, which represents a clip of about 8.7%, in order to address surpluses in the local market.
Tekcapital PLC (LON:TEK), the UK intellectual property investment group said its wholly-owned portfolio company Guident Ltd has appointed Johan De Nysschen as a director. The firm said De Nysschen has served as senior executive of several leading automotive companies, including Executive Vice President of General Motors and President of the Cadillac Motor Division, President of Infiniti Motor Company Ltd, President of Audi of America Inc, and President of Audi Japan, amongst other positions.
EQTEC Plc (LON: EQT) said that, having been advised its current nominated adviser, Northland Capital will be removed from the register of Nomads with effect on 1 February 2019 due to its proposed merger with SPAngel, its directors are in discussions with another Nomad at present and anticipates a smooth and orderly transition of the role. The firm said it will provide a further update as soon as practicable.
6.45am: The Footsie tipped to drop by around 1%
The FTSE 100 is set to drop around 1% as Thursday’s trading kicks off as the global equities market bristles at renewed trade tensions – Trump’s Chinese truce evidently didn’t last long.
IG Markets is calling London’s FTSE 100 down 71 points, at 6,858 to 6,862, with just over an hour to go until the start of trading.
An arrest of a Chinese technology executive – the chief financial officer of Huawei - in Canada with an agreed extradition to the United States is the trigger point.
Meng Wanzhou, who is also Huawei’s deputy chair and is the daughter of founder Ren Zhengfei, was arrested in Vancouver in relation to suspicions of violations to US sanctions against Iran.
“The arrest comes against a backdrop of concerns about trade and technology as well as cyber security when using Chinese hardware for IT systems,” said Michael Hewson, analyst at CMC Markets.
“ZTE another Chinese firm has already been sanctioned by US authorities so for Huawei to be dragged in as well comes at a bad time when tensions between China and the US over trade at such a delicate stage, and could derail whatever was agreed at the weekend between President’s XI and Trump.”
The analyst added: “Asia markets haven’t reacted well selling off sharply and this is expected to hand over to European markets this morning with more heavy falls and wrestles the attention back from the shift in focus towards the slide in bond yields, which seemed to be a little overdone when considering how little has changed from a week ago.”
US markets were closed on Wednesday due to the funeral of former president George HW Bush.
In Asia, today, Japan’s Nikkei shed more than 400 points or 1.9% to trade at 21,501 while Hong Kong’s Hang Seng plummeted 770 points or 2.9% lower to 26,040 and the Shanghai Composite slid down 1.46% to 2,610.
Significant events expect on Thursday:
Trading update: Ted Baker
Economic data: US weekly jobless claims; US Challenger job cuts; US factory orders; US balance of trade
Around the markets:
- Sterling: US$1.2704, down 0.24%
- Gold: US$1,237 an ounce, up 0.02%
- Brent crude: US$61.08 a barrel, down 1.6%
- Huawei executive Meng Wanzhou arrested in Canada – BBC News
- Opec and Russia set to defy Trump with oil output cut – Financial Times
- Sir Terry Morgan resigns as chairman of Hs2 Ltd And Crossrail – Independent
- Glencore, Vitol and Trafigura face bribery probe – Financial Times
- BT bars Huawei's 5G kit from core of network – BBC News
- Facebook discussed cashing in on user data, emails suggest – The Guardian
- Stagecoach considers selling US business – The Times
- Takeda investors back £46bn takeover of UK-listed Shire – Sky News