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FTSE 100 closes lower as Wall Street drops with Chinese rare earth threat spooking markets

Last updated: 22:20 29 May 2019 BST, First published: 06:46 29 May 2019 BST

City skyline
  • FTSE 100 closes down 87 points

  • Wall Street hits two-month lows

  • Trade war gloom dampens risk appetite

  • Tory leadership contest caps the pound

 

5:15pm: Footsie weak as Wall Street hits two-month lows

The FTSE 100 index closed sharply lower for the second day in a row, weak as Wall Street hit two-month lows in its midday trading.

The UK blue-chip index ended down 84 points at 7,185.30, above the session's lowest point of 7,151.37 but well off the day's opening peak of 7,268.95.

Edward Moya, senior market analyst at OANDA commented: “The global bond market rout continues as markets selloff as Chinese media claims Beijing is ready cut rare earths exports to the US.

“China has been handling roughly 80% of US imports of rare earths, a commodity that is needed in the automobile, electronics and defense sectors. It appears the financial markets are convinced the trade war is not going to yield anything promising anytime soon and new risks are emerging.”

He added: “If China does follow through on its rare export ban, the effect would cripple high tech manufacturing and disrupt earnings figures for many S&P 500 companies for several quarters.

“Chinese consumers may also boycott US goods and that would also be another catalyst for a drastic downgrade with earnings forecasts.”

3:45pm: FTSE 100 continues to wear losses as global markets slide

With just over an hour to go until the Wednesday’s close the FTSE 100 continued to wear a heavy loss for the day.

Trading at 7,171 the London index was down 97 points or 1.34%.

Sentiments were shook over the escalating trade ‘war’ between China and Donald Trump’s United States, though it is not the only factor of uncertainty right now.

On Wall Street, the Dow Jones dropped back 169 points or 0.67% to 25,178 while the S&P 500 gave up 0.47% to 2,789 and the Nasdaq was off 0.57% at 7,565.

In the UK, the ramping up Tory leadership contest has been steering the pound to the downside, meanwhile, broader demand concerns are also pressuring crude oil prices.

“It is getting ugly out there and despite a backdrop of geopolitical risks that could squeeze supplies, the latest trade war threats from China could cripple global growth and thus take down oil prices,” said Edward Moya, analyst at OANDA.

“Crude is falling through key support levels and is quickly erasing the effects of the OPEC + production cuts.”

He added: “US stockpiles are expected to decline this week, but that may not matter if we do not see some constructive news that trade talks between the two largest economies are poised to resume.

“The oil market and all risk assets remain very vulnerable here and we should not be surprise if we see another 5% lower across on the board on further risk aversion flows.”

Brent crude was down 1.3% to 69.20 per barrel, while the West Texas crude shed 2% to US$57.98.

2:10pm: FTSE 100 extends losses as Chinese rare earth threat spooks equity markets

The FTSE 100 extended the morning’s losses in the run up to the Wall Street open as traders globally went into panic mode amid rising tensions over America’s trading relationship with China.

Changing hands at 7,159 the London index was down 109 points or 1.51%.

In New York, the Dow Jones is predicted to open sharply lower and similarly the S&P 500 and Nasdaq will follow.

The market is ‘set up for further losses’ according to Neil Wilson, analyst for markets.com, who in a note highlighted that traders and investors are taking the trade dispute between the US and China more seriously in light of China’s rare earth threat.

“We’ve not heard this much about rare earth metals since the last time China imposed a ban in 2010,” Wilson said. “This could be a catalyst for further downside pressure – the ‘weaponization’ is indicative of China hunkering down for the fight.

“Whilst any short or long term economic implications will need to be assessed, from the chatter we’re seeing today this rare earth stuff has all the hallmarks of spooking investors.

“They may be much more sanguine than that, but there is a clear risk and indeed a sense that markets need to price more accordingly to reflect the downside risks from the trade conflict.”

11:55am: FTSE 100 languishes as New York is seen lower on China’s rare earth threat

The FTSE 100 remained on the back foot by lunchtime with the market’s attention starting to turn to New York where another negative start is now anticipated.

In London, the blue-chip index was down 95 points or 1.32% changing hands at 7,174.

Early indications, meanwhile, suggest the Dow Jones will begin the day’s session with a 135 point drop, to mark near its lowest level in four months, at 25,212. The S&P 500 at the same time is expected to start around 15 lower at 2,787.

“Down beat economic news and the fact there’s no resolution in sight to the mounting global trade woes means that Wall Street is struggling to find much support as the week progresses,” said James Hughes, analyst at AXI Trader.

“With the Dow having clocked up some significant losses on Tuesday, futures point towards a similarly disappointing start to Wednesday’s session with this morning’s unexpected jump in German unemployment adding to fears that a slowdown is looming.”

10:30am: FTSE 100 continues slump lower as China’s rare earth threat shocks traders

The FTSE 100 continued lower through Wednesday morning’s trade, with the London index down 104 points or 1.45% changing hands at 7,164.

Escalating trade tensions are certainly concerning for technology makers, though also a few quite specific investment opportunities are being thrown up.

“China has started making its move on two fronts, firstly threatening to constrict the supply of its rare earth minerals to the US and secondly Huawei has launched a legal case in US courts arguing that the country’s decision to restrict the world’s largest network equipment maker was illegal,” said Fiona Cincotta, analyst at City Index.

“From an investment point of view though, this has the potential to boost the share price of non-Chinese rare earth producers.”

AIM-quoted Rainbow Rare Earths Ltd (LON:RBW), for example, soared 22% higher in Wednesday’s early deals – as traders marked up the micro-cap Africa-based group.

10:00am: Pound trades lower with attention stuck on Tory leadership contest

Whilst international trade dispute is a driver of falling equity markets in Asia, Europe and likely in due course North America, closer to home the Conservative Party popularity contest is among the few factors for the pound.

A US$1,2642 the pound was down 0.09% against the dollar meanwhile versus the Euro it was 0.03% lower at €1.1334.

 “Today’s calendar is once again sparsely populated, with little in the way of major data releases due from either side of the Channel,” said Michael Brown, analyst at Caxton.

“As a result, markets are likely to continue focusing on an ever-growing field of Conservative Party leadership candidates in addition to EU leaders beginning political bargaining over the distribution of various top jobs - including the ECB Presidency.

“Any sterling appreciation is likely to remain capped by the ongoing uncertainty, with the balance of probabilities pointing to further downside moves.”

9:25am: FTSE 100 down 1% as China’s rare earth threat puts another dent in sentiment

Rare earths may become even rarer for the major international technology firms that rely on them as America’s ‘trade war’ with China continues.

China’s new threat to withhold supplies is the latest escalation, and, it is another dent to broader investor sentiments.

In London, the FTSE 100 was down 83 points or 1.14% at 7,181.

“The European markets resumed their fearful performance on Wednesday. The catalyst for the latest round of losses was a thinly veiled threat from China over its willingness to throw around its rare earth weight in its battle with the US,” said Connor Campbell, analyst at Spreadex.

“Following comments from a National Development and Reform Commission official, Global Times editor-in-chief Hu Xijin tweeted that based on what he knows, Beijing is ‘seriously considering restricting rare earth exports to the US.’

“Given that the materials are used in everything from iPhones to missile guidance systems to electric cars, and that China’s mines account for around 70% of the globe’s output, the country may have found its not-so-secret weapon in the trade war.”

8.50am: Footsie starts on the back foot

The FTSE 100 index kicked off Wednesday as expected and slumped 71 points to 7,198 shortly after the open.

The blue-chip index took its lead from a weak performance across global markets overnight, where recent signals indicated that the US-China trade dispute could go on for longer than anticipated.

“There’s a growing acceptance that the US and China are in this for the long-haul. Possible Chinese retaliation on rare earths has got investors really starting to notice … Markets are beginning to price in the risk of a prolonged trade war and a possible hit to US economic growth”, said Neil Wilson, chief market analyst at Markets.com.

He added that the darkening trade picture was also driving investors away from equities and into the bond markets, causing yields to drop.

WATCH: Investor Update: Rosslyn Data Technologies grows revenues and generates cash

Some of the early fallers in the FTSE 100 were Marks and Spencer Group PLC, which was down 4.8% at 238.6p amid continued fears it could be relegated from the FTSE 100 next week. Its fellow candidate for relegation, easyJet PLC (LON:EZJ), also slipped 1.7% to 893.7p.

Among the blue-chips risers, silver miner Fresnillo was topping the list in early deals, up 1.4% to 748.6p , followed by Russia-focused steel maker and iron miner Evraz plc (LON:EVR) which was up 1% at 593.2p.

In the mid-caps, FTSE 250 firm Stobart Group Ltd (LON:STOB) rose 10.8% to 130p after an upbeat outlook statement in its full-year results accompanied a 75% jump in underlying earnings (EBITDA) from the firm's two main operating divisions – aviation and energy.

At the other end of the mid-cap index was Dutch-based petroleum group Vivo Energy PLC (LON:VVO), which shed 2.4% at 112.8p.

On currency markets, the pound was down 0.02% against the dollar at US$1.2649, with Neil Wilson saying the market was likely to stay in “wait-and-see mode” until there was more clarity around the leading candidates to replace Theresa May as leader of the Conservatives.

Proactive news headlines:

Stobart Group Ltd (LON:STOB) said it was confident about the outlook for the new year as it ramps up investment in expanding its London Southend Airport after de-risking the balance sheet through disposals.

IQ-AI Limited (LON:IQAI) said its chairman, Trevor Brown has subscribed for £250,000 in nominal amount of 6% unsecured convertible loan notes 2025 (CLNs), convertible into 16,666,666 ordinary shares at a price of 1.5p each. The group said funds raised as a result of the issue of the CLNs will be used to provide additional working capital for product development. It noted that Brown is directly and indirectly (through Free Association Books, a company in which he is interested) interested in 36,083,025 ordinary shares in the company, equivalent to 29.98% of the issued ordinary share capital.

Alba Mineral Resources plc (LON:ALBA) has revealed details of the latest batch of results from the Clogau gold project in Wales. Results from 243 samples, among 1,200 samples taken in a recent programme, include gold-in-sample grades from two new anomaly areas which are located away from and separate to the historic mining area.

Bluejay Mining PLC (LON:JAY) has revealed an upgrade to the resources at the Dundas ilmenite project, in Greenland. The project’s total mineral resource increases by 15% to 117mln tonnes, at 6.1% ilmenite in-situ. Big Pic in January.

Aquaculture and genetics group Benchmark Holdings PLC (LON:BMK) is to take full control of its Chile-based salmon breeding joint venture. Partner AquaChile was acquired by Agrosuper in January and talks have now started over the dissolution of the JV.

Rosslyn Data Technologies PLC (LON:RDT) cut its operating losses by 75% in its last financial year while also turning cash generative.

Strategic Minerals PLC (LON:SML) has signed a Deed of Variation with New Age Exploration Limited (NAE) to defer the initial payment date for the acquisition of NAE's 50% shareholding in Cornwall Resources Limited (CRL) from 30 May 2019 to 27 June 2019.  The AIM-listed producing mineral company said the deferral is to allow for the expected receipt of the funds from Cobre's major client.

Premier African Minerals PLC (LON:PREM) has started talks with other parties about the development of the RHA tungsten mine. The junior has agreed to a direct approach from a potential alternative buyer of wolframite, while two Development Finance Institutions are to conduct due diligence.

ValiRx Plc (LON:VAL) said the dose ranging study of its lead drug continued as it outlined potential next steps. In an update alongside its full-year results, ValiRx also said it would either out-licence VAL201 to a major pharmaceutical company or proceed to a phase llb study once dose-ranging is complete. Big Pic in May.

Itaconix Plc (LON:ITX) has made £242,000 from the sale of its 22.49% stake in Danish nicotine gum maker Alkalon. Big Pic in May.

Afarak Group PLC (LON:AFRK) has told investors it will issue new equity as part of transactions to increase its ownership stake in a number of South African mining assets. In total, the company will be issuing 2.12mln new shares. They can be issued within existing shareholder authorisations and the agreements are not expected to have any major impact on Afarak or its business.

Avation PLC (LON:AVAP) has revealed that Crédit Agricole Corporate and Investment Bank acted as sole arranger, facility agent and security trustee for the commercial financing of the new ATR 72-600 turboprop aircraft the firm delivered to Cebu Air, Inc. at the manufacturer's facility in Toulouse, France, as announced on May 24. Avation's executive chairman, Jeff Chatfield said: "We were pleased to enjoy commercial finance for our 46th aircraft."

W Resources PLC (LON:WRES), the tungsten, tin and gold mining company with assets in Spain and Portugal, is has announced the appointment of Alternative Resource Capital/Shard Capital as its joint broker alongside Turner Pope Investments with immediate effect.

MaxCyte (LON:MXCT) (LON:MXCS), the global cell-based medicines and life sciences company, said it will host a Capital Markets Day for analysts and institutional investors on Thursday 11 July, from 15.00-17.30 BST in London. The group said discussion topics will include MaxCyte's partner programmes and in-house oncology pipeline, and trends in the cell therapy industry, and demonstrations will also be given of the company's new products.

6.45am: FTSE 100 tipped sharply lower

The FTSE 100 is tipped to open much lower on Wednesday morning, taking their lead from overnight weakness in the global markets.

Spread-betting firm IG expects the FTSE 100 to open around 37 points lower after finishing Tuesday down almost 9 points at 7,269.

Predictions of a lower open followed a weak finish for Wall Street on Tuesday as traders struggled for fresh catalysts, with the Dow closing down 0.9% while the S&P 500 was 0.8% lower and the Nasdaq down 0.4%.

In Asia today, the weakness in the US coupled with comments from Trump that he was not ready to make a trade deal with China drove the Japanese Nikkei 225 down 1.2% while Hong Kong’s Hang Seng was 0.2% lower.

The trade war is still on investors’ minds amid a lack of other news, with China’s official PMI data for May, due on Friday, likely to give more detail of how the US’s trade tariffs are affecting the world’s second largest economy.

An inversion in the bond yield curve for US treasuries for the second time this year, normally interpreted as a recession warning, also provided more anxiety for the market.

On the currency markets, the pound was relatively flat against the dollar, up 0.05% at US$1.2658, and down 0.02% against the euro at €1.1334 as the Brexit drama coupled with an ongoing rift between Italy and the European Commission added some gloom to the outlook.

Quiet Wednesday for company news

The mid-point of the shortened week is looking fairly thin on the ground for corporate news, with no blue-chip updates scheduled and just two FTSE 250-listed firms, software provider Aveva and transport group Stobart, scheduled to report final results.

Aveva is expected to deliver a strong full-year performance, having reported a low double-digit revenue increase in its final quarter and reiterated a “positive” outlook for the year in a February trading update.

Stobart, meanwhile, will be delivering its results a few weeks later than planned as the disposal of its airline business, Stobart Air, and aircraft leasing business, Propius, to Connect Airways – a joint venture set up with Virgin Atlantic and hedge fund Cyrus Capital - has taken up most of its time recently.

There will also a smattering of results in the small caps with finals from AIM 100 housebuilder Telford Homes and interims from easyHotel and oil & gas firm Jadestone Energy.

Things are looking equally sparse on the economic calendar, with the latest US mortgage application figures expected but little else besides.

Significant announcements expected for Wednesday:

Finals: Aveva Group PLC (LON:AVV), Stobart Group Ltd. (LON:STOB), Telford Homes plc (LON:TEF)

Interims: easyHotel PLC (LON:EZH), Jadestone Energy Inc. (LON:JSE)

Economic data: US MBA mortgage applications

Around the markets:

  • Sterling: US$1.2658, up 0.05%
  • Brent crude: US$68.08 a barrel, down 0.86%
  • Gold: US$1,281.4 an ounce, up 0.38%
  • Bitcoin: US$8,561.3, down 2.3%

City headlines:

  • Airtel Africa, the continent’s second-largest mobile operator, will list in London next month to raise $1 billion to cut its debt pile – The Telegraph
  • Hopes of a British Steel rescue have risen after its liquidators revealed they had been in touch with more than 80 potential bidders, who have been given until early June to register their interest in the stricken company – Financial Times
  • The appointment of a new European Central Bank chief could be delayed due to political deadlock that risks undermining market confidence – The Telegraph
  • Non-Standard Finance, the firm battling to buy doorstep lender Provident Financial, has launched a last-ditch bid to woo investors amid fears its deal could collapse – Daily Mail
  • Alibaba, the world’s second largest online retailer, is considering raising as much as US$20bn through a listing in Hong Kong – The Times

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