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FTSE 100 closes lower as Chinese data and Brexit weighs

Footsie closed down over 63 points at 6,855 on the day
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PM May faces a 'meaningful vote' from the UK parliament
  • FTSE 100 index closes firmly lower

  • JD Sports shines after Christmas trading update

  • Worries over Brexit and Chinese ecinomy

  • US stocks also down

FTSE 100 joined the global equity sell-off on Monday as traders fret about the Chinese economy and a stronger pound weighed on the UK's premier index.

It came as the prospect of no Brexit at all came in a warning from UK Prime Minister Theresa May ahead of the crunch parliamentary vote tomorrow.

Footsie closed down over 63 points at 6,855.

FTSE 250, its midcap cousin - closed even lower - off over 124 points at 18,417.

Earlier, export data showed that the value of goods shipped from China to the rest of the world fell by more than 4% last month (December) versus a year ago - the worst monthly performance for the sector in more than two years.

But for the second year in a row, in 2018, the People's Republic posted a record trade surplus with the US, with which it is locked in a trade war.

"Overnight, Beijing confirmed that imports dropped by 7.6%, and exports declined by 4.4%," said David Madden, market analyst at CMC Markets.

"The poor import figure underlines weak domestic demand, and that feeds into a wider viewpoint that China’s economy has been cooling for a number of years.

"The drop in exports adds weight to the argument that Trump’s tariffs tactics are working," he added.

Banks were the big gainers on Footsie, with Royal Bank of Scotland (LON:RBS) up 3.01% to 232.50p, while Lloyds Group plc (LON:LLOY) added  1.52% to 55.54p.

On Wall Street, the Dow Jones Industrial Average is down nearly 65 points and the S&P 500 is down around ten.

4pm: Footsie down 56 points

The Footsie made a half-hearted effort at a rally as it entered the last hour of trading.

The FTSE 100 was down 56 at 6,862.

The FTSE 250 was also making a comeback, trimming its loss to 185 points at 18,358.

JD Sports ended the day as the FTSE 350’s best performer, rising 31p to 427.2p after a sparkling trading update covering the Christmas period.

Stobart Group Ltd (LON:STOB) was the next best performer after its former boss, Andrew Tinkler, confirmed he had taken a 12.2% stake in Flybe Group PLC (LON:FLYB) – the struggling airline that Stobart is looking to take over in conjunction with Virgin Atlantic and US hedge fund Cyrus Capital.

Stobart shares rose 3.9% while Flybe’s rose 6.7%.

2.30pm: US indices open 0.9% lower

Just over a dozen Footsie constituents are clinging on to gains as investors move into “risk off” mode.

They have any number of reasons for battening down the hatches: weak Chinese trade data; the likelihood of political mayhem following the Brexit vote in parliament, sterling’s strength, the US government shut-down and a weak start today on Wall Street.

The FTSE 100 was down 67 points (1.0%) at 6,851. Across the pond, the Dow Jones was off 218 points (0.9%) at 23,778 and the S&P 500 was down 24.4 points (0.9%) at 2,571.8.

“If, as seems likely, the House of Commons rejects Prime Minister Theresa May’s Brexit deal (voting begins at c19:00 on 15 January), all hell could break loose as the various factions of parliament struggle to gain control of the Brexit process. In the end, we expect the UK to secure a semi-soft or soft Brexit (55% probability) or completely reverse Brexit and remain in the EU – probably after a second referendum (25% chance),” said Berenberg.

The German bank thinks it unlikely that May will come back to parliament with a second solution should the first one fail, if only because of time constraints (just three working days).

“This would give her the rest of this week and the weekend to negotiate with Brussels and the various factions of UK parliament from which she needs to win support. Even if the EU was willing, because of the time constraints, Mrs May will not be able to renegotiate her deal. The best she can hope for is that further clarity from the EU on the backstop will be enough to bring the DUP on board. If Mrs May can get the DUP on side, there is a good chance that the Brexiteers and the rest of her party would follow. If Mrs May loses a second vote, or concedes defeat early, it will then likely fall to parliament to come up with a solution,” Berenberg continued, adding that it does not expect May to resign, even if she loses badly, while it sees only a small chance of a snap election.

Jasper Lawler of LCG reckons that if parliament somehow passes a bill calling for a second referendum, sterling would move above US$1.30 within minutes of it being announced.

“Anecdotally, the Brexit-voting public seem very comfortable with exiting the EU without a deal but there is very little taste for it in parliament. We think a Brexit delay by revoking or extending Article 50 is ultimately what we are facing,” Lawler said.

12.30pm: Pound's strength adds to the Footsie's weakness

The pound has hit its highest level in seven months, which has not done many favours to the Footsie’s many multinational companies.

The FTSE 100 was down 73 at 6,845 ahead of a US open that is expected to see the Dow Jones open with a 200 point fall.

“The pound has moved up to its highest level in seven weeks against the US dollar as the PM [prime minister] speaks, and is now not far from the US$1.29 handle; however, the markets remain highly sceptical as to whether May can get the required support in the Commons tomorrow evening and a heavy defeat would likely see her deal dead in the water,” commented David Cheetham at XTB online trading.

“Recent developments have seen the consensus make a marked shift away from the probability of a no-deal but there remains a nagging doubt that this is being dismissed out of hand all too readily. If traders start to fear that it could realistically happen once more then the pound is vulnerable to a swift swoon lower,” Cheetham opined.

For what it is worth, the bookmakers do not give prime minister Theresa May much chance of pulling a rabbit out of the hat.

On the subject of bookmakers, Paddy Power Betfair plc (LON:PPB) was the top blue-chip faller after Barclays downgraded the stock to ‘equal weight’ from ‘overweight’ and slashed its target price to 6,700p from 7,600p.

Goldman Sachs also cut its price target for Paddy Power, to 7,100p from 7,400p.

Paddy Power shares trade at 6,260p, down 270p on the day.

Sector peer GVC Holdings PLC (LON:GVC) also got the treatment from Barclays and Goldman, with the former cutting its price target for the bookmaker to 1,083p from 1,180p and the latter moving to 1,100p from 1,150p.

GVC shares were down 16p at 703.5p.

11.00am: Losses lengthen

The top-shares index’s losses have lengthened as traders took a sneaky early look at how US indices are set to perform today.

Futures contracts point to the Dow Jones industrial average and the S&P 500 both kicking off about 1% lower.

On this side of the pond, the FTSE 100 was down 60 points (0.9%) at 6,858.

“US futures are lower ahead of the start of the week on Wall Street, with stocks further paring last week’s gains following the post-Christmas bounce,” said Craig Erlam at Oanda.

“We’re now seeing a real test of this improved risk appetite, which has been evident over the last few weeks. US stock markets have rebounded back towards levels that were very well supported during the second half of 2018. A break of these levels in mid-December saw the sell-off pick up significant momentum, so it’s natural that we’re seeing some profit taking when approaching them again from below,” he suggested.

Having held up reasonably well in early trading, sterling has started to drift lower on foreign exchange markets, which Josh Mahony at IG Group reckons is because traders are increasingly uncertain about what the future has in store for the UK economy.

“Brexit has rarely felt so up in the air, with a likely rejection of May’s Brexit plan leading us into a period of great unknown. It is difficult to see how Theresa May is going to shift from adamantly stating that this is the only deal possible, to proposing a new direction within three days,” Mahony stated.

“As a no-deal Brexit becomes less likely, the likelihood for a ‘people’s vote’ is growing which is part of what is helping drive the bullishness seen throughout the start of 2019,” he added.

On the corporate news front, most of the excitement is taking place among the small caps.

Verona Pharma PLC (LON:VRP) plunged 18p to 86p despite publishing what it said were encouraging top-line results from a three-day phase 2 trial evaluating of nebulized ensifentrine, a treatment for chronic obstructive pulmonary disease (COPD).

Results from the trial showed that ensifentrine did not improve breathing by a “statistically significant” amount, although it was better than a placebo.

The attempt to put a spin on the results and claim they were encouraging cut no ice with the market, which slashed the share price to 85p from 104p.

READ Verona Pharma splutters as lead COPD drug disappoints in phase II study

https://www.proactiveinvestors.co.uk/companies/news/212494/verona-pharma-splutters-as-lead-copd-drug-disappoints-in-phase-ii-study-212494.html

Going the other way was Pantheon Resources Plc (LON:PANR), which rose 12.2% to 26.65p on the back of the acquisition of a controlling interest in Vision Gas Limited and Vision Resources LLC.

Jay Cheatham, the chief executive officer of Pantheon, said the acquisition “paves the way for Pantheon to assume operatorship and decision-making responsibility for our East Texas assets into the future."

9.45am: Oils weigh on Footsie

London’s leading shares remain in the doldrums, weighed down by concerns over the Chinese economy and fearful of yet another own goal on Brexit.

The FTSE 100 was down 28 at 6,890, with index heavyweights Royal Dutch Shell (LON:RDSB) and BP PLC (LON:BP.) - both down 1.1% - contributing to the fall on the back of a softer oil price.

On the futures market, Brent crude for March delivery has fallen below the US$60 a barrel market, down 70 cents (1.2%) at US$59.80.

“It’s time for May’s endgame,” suggests Neil Wilson at markets.com.

“Sterling remains supported ahead of the key Brexit vote this week albeit within the broad range of the recent downtrend,” Wilson noted.

A strong sterling is not necessarily good news for the Footsie as a large number of its constituents earn the bulk of their income overseas.

“The pound has found some bid with investors looking at a potential extension of Article 50. It’s not so much the fact of the extension but the apparent coalescence of opinion around no-deal being a no-no. There are also reports that Jean Claude Juncker is readying a letter on backstop assurances – MPs are not content with assurances so it would make sense to discount this unless we see something truly radical,” Wilson suggested.

There is not much new flow from FTSE 100 companies leaving the field open to the mid-caps.

JD Sports Fashion PLC (LON:JD.) extended early gains, rising 40p to 436.2p after its well-received Christmas trading update but Premier Oil PLC (LON:PMO) tumbled on market speculation that it is about to make a UK acquisition.

The company neither confirmed nor denied the speculation, saying it would “continue to look at opportunities to acquire UK North Sea assets in line with the group's stated strategy”.

Specifically, the group said, no firm decision has been taken to bid for any of the assets currently being marketed by US major Chevron.

Were it to acquire large chunks of Chevron’s assets it is possible that the company might have to go to the market to raise funds, which might explain why the shares were off 9.7% at 71.75p.

Premier’s fall at least meant white-collar recruitment specialist PageGroup PLC (LON:PAGE) avoided the FTSE 250 wooden spoon.

Its shares were down 6.2% after the group reported a slowdown in the UK jobs market due to Brexit uncertainty.

READ PageGroup achieves record 2018 after strong end to the year despite Brexit uncertainty

 

According to Liberum Capital Markets, the fourth quarter profit of £211.1mln was 3% ahead of consensus expectations of £205.3ml.

8.35am: Weak start for Footsie

As expected, the FTSE 100 started the week in the doldrums, losing 35 points to trade at 6,883.38 in the first half hour.

Disappointing Chinese trade data pushed Asia’s main markets into negative territory, which had a knock-on impact in London, which is braced for more Brexit wrangling ahead of Tuesday’s crunch vote.

In the US, the government shut-down has moved into week-four with President Trump ready to declare a state of emergency.

Wall Street is also braced for earnings season, which is being viewed with trepidation given the recent and unexpected warning by Apple.

“As ever, but more so than normal, it’s less about the actual earnings than the guidance and the kind of outlook the CFOs are giving on the calls,” said Neil Wilson of Markets.com.

“In light of the Apple warning, of critical importance will be the expected impact on earnings from the trade war with China.

“That could offset any beats – three months ago the high volume of companies beating guidance wasn’t enough to assuage concerns raised by the forecasts and guidance.”

In a repeat of Friday, the building stocks were well bid with Berkeley Group (LON:BKG) heading the Footsie with a 1.5% gain, followed by Taylor Wimpey (LON:TW.), which last week provided a reasonably confident assessment of prospects.

The current week sees the bulk of the quoted housebuilding sector update on trading.

Despite being one of the retail sector’s festive winners, Next (LON:NXT) found itself on the ‘sell’ list of Credit Suisse as the London arm of the influential Swiss bank downgraded its recommendation.

JD Sports Fashion (LON:JD.) was in demand early doors after its Christmas figures more than passed muster.

The stock rose 7% early on, valuing it at £4.1bn, which puts it neck and neck with Marks & Spencer (LON:MKS).

Proactive news headlines:

PhotonStar LED Group PLC (LON:PSL) saw its shares rise on Monday after the designer and manufacturer of intelligent lighting and building control solutions said its discussions with a potential new Nomad to replace Northland Capital Partners has reached the due diligence process. The group said it believes it will be possible that it will be able to announce the appointment of the new Nomad on or before the 31st January 2019, although no guarantees can be given at this stage.

Photonstar also announced the appointment of Martin Lampshire as a non-executive director with immediate effect. The group said Lampshire has worked for a number of City-based brokers including Teather & Greenwood, Charles Stanley, Hichens Harrison Stockbrokers and Daniel Stewart Stockbrokers.

Horizonte Minerals Plc (LON:HZM)(TSE:HZM) has been awarded a construction licence for the development of the Araguaia ferronickel project in Pará State, Brazil. The licence was granted by SEMAS, the Brazilian Pará State Environmental Agency.

Highlands Natural Resources Plc (LON:HNR) has told investors that all eight new wells at the East Denver project are now online as production wells. The company owns a 7.5% interest in East Denver and it expects it will now receive robust revenue streams from the wells throughout 2019.

Ariana Resources PLC (LON:AAU) produced 27,110 ounces of gold during the year to December 2018, exceeding initial full-year production guidance of 20,000 ounces. Gold production for the fourth quarter was 7,517 ounces.

SDX Energy Inc (LON:SDX, CVE:SDX) has revealed a positive start to 2019 with the SRM-3 well, at the South Ramadan project in Egypt, unearthing oil pay in multiple reservoir zones. SRM-3 was drilled down to a depth of 15,635 feet. It encountered 75 feet of net conventional oil pay in its primary target, the Matulla reservoir, also 20 feet in the Brown Limestone formation and 15 feet in the Sudr section.

Digital marketing services company Be Heard Group PLC (LON:BHRD) saw a marked improvement in underlying profitability in the second half of 2018.

Radiation detection solutions specialist Kromek Group PLC (LON:KMK) is on track to achieve revenue growth and in-line underlying earnings (EBITDA) over the full year.

ITM Power PLC (LON:ITM) has secured the first sales of its hydrogen production systems in Australia. Four of the AIM company’s 250-kilowatt (kW) electrolyser units totalling 1-megawatt (MW) have been sold to three different Aussie customers.

Coinsilium Group Limited (NEX:COIN) has hailed “record levels of institutional investment” in blockchain companies over the last 12 months as it issued a strategic business update.

Plexus Holdings PLC (LON:POS) has revealed a deal with Russia-focused partner Gusar which is expected to inject new impetus to the roll-out of the POS-GRIP jack-up rig systems. AIM-quoted Plexus will buy-back 4.95mln of its shares currently held by Gusar for £2.5mln of cash, with the transaction priced at 50.5p per share.

Caledonia Mining Corporation PLC (LON:CMCL) produced 14,952 ounces of gold during the quarter ended December 31, 2018, a seven per cent increase over the previous quarter. Total gold production for the year to December 31, 2018, was about 54,512 ounces.

Obtala Limited (LON:OBT), the Africa-focused forestry and timber group, saw a sharp quarter-on-quarter increase in revenue in the fourth quarter of 2018 and expects this trend to accelerate in 2019.

ADES International Holding Ltd. (LON:ADES), a leading oil & gas drilling and production services provider in the Middle East and North Africa, announced that it has successfully exercised the one-year extension option for its existing contract for Admarine II. The group said that the contract extension of Admarine II, which is currently contracted and operating in the Gulf of Suez, comes into effect upon expiry of its existing contract during January 2019.

Tekcapital PLC’s (LON:TEK) portfolio firm Guident has appointed Daniel Grossman as a director. The UK IP investment firm said Grossman had previously served as chief executive of commuter shuttle service Chariot and vice-president of ZipCar as well as the chief operating officer of General Motors’ mobility division, Maven. BP August

Seeing Machines Limited (LON:SEE), the advanced computer vision technology company that designs AI-powered operator monitoring systems to improve transport safety, noted that General Motors has been named the winner of the Autoblog 2019 Technology of the Year award for its Cadillac Super Cruise system which incorporates the group’s FOVIO driver monitoring technology to enhance safety, through direct measurement and enforcement of driver attentiveness to the roadway.

6.30am: FTSE 100 set to drop 

The FTSE 100 looks set to drop after China weighed in with worse than expected December export figures.

Clearly impacted by the trade spat with America, additional worries emanated from the fact the country also conducted less business with the rest of the world.

The major stock indices in the region were dragged lower – with the exception of Japan, which was closed for a public holiday.

In London, the index of blue-chip stocks looks likely to open 33 points lower at 6885.18, according to the spread betting firms.

More negatives than positives

Moving into the new trading week, there certainly appear to be more negatives than positives to ponder.

On this side of the Atlantic, MPs vote on Tuesday on the Brexit withdrawal bill – though this is highly unlikely to place a lid on the turmoil.

Going by weekend speculation on the matter, political chaos could ensue if the pro-remain wing of the Tory party enacts what has been described in the Sunday press as a “very British coup”.

In the US, the government shutdown is heading into its fourth week with President Trump ready to declare a state of emergency.

“Markets are still very much in sell the rally mode given how far below last year’s peaks we still are,” said Michael Hewson of CMC Markets.

After a welter of updates from the retail sector last week, a dribble of second-liners provide their numbers and market insights. They include JD Sport Fashion (LON:JD.) and Associated British Foods (LON:ABF), owner of Primark.

Shorn of its Costa Coffee business, budget hotelier Whitbread (LON:WTB) updates as do a slew of builders hoping to emulate the success of Taylor Wimpey (LON:TW.).

Significant announcements expected  on Monday, January 14:

Trading updates: PageGroup PLC (LON:PAGE), JD Sports Fashion PLC (LON:JD.), Revolution Bars PLC (LON:RBG), Dechra Pharmaceuticals PLC (LON:DPH), Tarsus Group PLC (LON:TRS), XP Power PLC (LON:XPP)

Economic data: CBI quarterly financial services survey

Around the markets:

  • Pound worth US$1.2844
  • Gold changing hands for US$1,291.30 an ounce, up US$1.90
  • Brent crude down 76 cents a barrel at US$59.72

City Headlines: 

  • Financial Times
  • May warns Eurosceptics that MPs could ‘block Brexit’ - failure to leave EU would cause ‘catastrophic harm’ to UK democracy, PM will say
  • Cuadrilla rebuffed in plea to relax fracking rules
  • Lloyd’s of London urged to focus plans on US - lobby group says UK insurance market should spend less effort on emerging economies
  • Trump on defensive over new Russia claims - US president rejects accusation he tried to conceal details of conversation with Putin
  • Times
  • A Brexit legal dispute that could open the floodgates to companies wriggling out of multimillion-pound property contracts is due to be heard in court this week
  • Homeowners face paying more for their mortgages as specialist lenders are hit by higher funding costs due to investors’ fears about Brexit and the global economy
  • Financial services suffer Brexit hit
  • The Financial Reporting Council approved the quality of an audit of Patisserie Valerie’s accounts six months before the café chain revealed a £40mln fraud
  • Telegraph
  • Debenhams rescue plans may cost 10,000 jobs
  • Premier Oil mulls cash call to fund Chevron deal
  • list of article image 2
  • Hedge funds have ramped up their bets against the AA, piling pressure on chief executive Simon Breakwell to get to grips with its enormous debts
  • Guardian
  • Potential buyers given until Tuesday to make an offer
  • MoD sends planners to ministries over post-Brexit border fears

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