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FTSE 100 closes higher as trade tensions ease

The UK's index of leading shares finished the first day of the trading week around 46 points higher at 7,378
London skyline
President Trump said the Fed was giving China an advantage
  • FTSE 100 closes higher

  • Wall Street up as Trump steps back from Mexico tarriffs

  • UK GDP misses expectations 

FTSE 100 closed higher as global shares went north as trade tensions dialled down a notch.

The UK's index of leading shares finished the first day of the trading week around  46 points higher at 7,378.

Meanwhile, FTSE 250 added around 66 points at 19,298.

It comes despite latest figures showing that the UK economy shrank in April by the most in nearly three years, the Office for National Statistics (ONS) said.

Gross domestic product (GDP) fell by 0.4% in April, the biggest monthly fall since March 2016, after a 0.1% drop in March.  Analysts had expected a 0.1% contraction.

Summing up the mood on trade, analyst David Madden, at CMC Markets, said:  "President Trump called off the tariffs on Mexican goods as he feels that Mexico have done enough in terms of border security, and it appears that his threat worked. The US president claims that Beijing will make a trade deal, because they have to make a deal. The absence of tough trade talk has boosted investor confidence."

Across the Pond, in the US, the Dow Jones Industrial Average is up around 200 points at 26,185 at the time of writing. The S&P 500 is up around 29 at 2,902.

Top riser on Footsie was online grocer Ocado (LON: OCDO), which gained 4.67% to 1,165p.

2.50pm: Trump talking

President Trump has been talking, which normally means bad news for someone, though Wall Street turned a deaf ear to the angry sounds emanating from the White House as stocks were driving higher.

The Nasdaq Composite led the gains, up 1.2% to 7,838, with the S&P 500 and Dow Jones not far behind.

US share prices were assisted by a tech rally and the boost from global markets as Washington swerved Mexico tensions, but the big man then lined up another old foe in his sights – the “very disruptive” Federal Reserve.

The President laid into the US central bank for raising interest rates too quickly and saying this was giving China the upper hand in trade talks.

“They devalue their currency, they have for years: It’s put them at a tremendous competitive advantage. And we don’t have that advantage because we have a Fed that doesn’t lower interest rates,” Trump told CNBC in a spur-of-the-moment phone interview on Monday.

“We should be entitled to have a fair playing field, but even without a fair playing field — because our Fed is very, very disruptive to us — even without a fair playing field we are winning,” he said.

After China’s foreign ministry earlier indicated that Beijing was open to further trade talks, Trump was aggressively confident: “The China deal is going to work out. You know why? Because of tariffs. Because right now China is getting absolutely decimated by countries that are leaving China, going to other countries, including our own.”

He said China was “going to make a deal because they’re going to have to make a deal”.

2.15pm: UK economy will shrink this quarter

Number crunchers at the NIESR think-tank have floated their own gloomy clouds up alongside those already drizzling above the UK on Monday, predicting that the first part of a recession equation is on the way.

NIESR has forecast that the economy will contract 0.2% in the current quarter as it sees no meaningful recovery in May, following the 0.4% drop in GDP in April that the Office for National Statistics posted earlier in the day.

If the manufacturing and construction sectors continue on their softer path, this would see the economy reverse some of the 0.5% growth from the first quarter. To enter an official recession, the UK would need to shrink for two successive quarters. 

Garry Young, NIESR's head of macroeconomic modelling and forecasting, said: “The UK economy is on course to contract by 0.2% in the second quarter. The latest GDP data were weaker than expected, partly reflecting shifts in production around the original Brexit departure date, including a 24% fall in car manufacturing.

"The underlying picture is also quite weak, with Brexit-related uncertainty at home and trade tensions abroad dragging on investment spending and economic growth”.

1.15pm: Tech stock rally drives global gains

The FTSE 100’s tech contingent were among the strongest risers in Monday afternoon trading, with the blue chip index led by Ocado Group plc (LON:OCDO) and with Just Eat PLC (LON:JE.) not far behind.  

Ocado was up 3%, Just Eat almost 2% higher and with other tech gainers including Micro Focus International PLC (LON:MCRO) and Scottish Mortgage Investment Trust PLC (LON:SMT), which despite its name is actually a loaded up with investments in the giant US and Chinese tech players.

Indeed, the theme was also expected to be continued across the Atlantic, with the tech-heavy Nasdaq index seen rising the most of Wall Street’s major benchmarks, ahead of the open there.

Last week, the tech sector took a big dent from reports that the two US competition agencies - the Federal Trade Commission and the Department of Justice’s antitrust arm – were looking to break up the tech behemoths, beginning with Alphabet Inc (NASDAQ:GOOG). The antitrust subcommittee of Washington’s House Judiciary Committee also announced hearings into the industry too.

Ocado was leading the UK pack as it also announced an investment in the “vertical farming” industry, with a £17mln two-pronged investment.

Making what is a diagonal strategic step, the online grocery group acquired a 58% stake in Scunthorpe-based Jones Food Company, the largest operating vertical farm in Europe, and set up a a joint venture with two vertical farming companies.

12.15pm: US stocks seen opening higher

US stock futures were pointing higher ahead of the Wall Street opening bell on Monday, with the dollar stomping all over the pound to boot.

With S&P 500 futures up 0.4% at almost 2,887 and the similar gains indicated for the Dow Jones and Nasdaq, US investors were taking comfort from central banks manoeuvring and a border deal between the US and Mexico, said market analyst Craig Erlam at Oanda.

“While market expectations for interest rate cuts still seem a little overdone – the probability of three Fed cuts this year has exceeded 50% - the perceived willingness of officials to engage in loosening after years of hikes has settled otherwise shaky markets. Markets have been on a good run for the last week and that looks set to continue at the start of this, which could further comfort investors who’s nerves may have been tested over the last nine months.”

He said the deal between Washington and Mexico to avoid tariffs was also helping to boost sentiment, as relations with China are already strained and ahead of a potential meeting between President Trump and Chinese counterpart Xi Jinping at this month’s G20 summit.

“If the Trump team can make headway with China at the G20 later this month, investors will be far happier. Until then and in the event that the meeting this month is unsuccessful, the onus will be on the central banks to fill the void which would make cuts all the more likely,” Erlam added.

There are doubts about a Federal Reserve rate cut this month, with chances less than 20% priced in, as the market await the outcome of a Trump-Xi meeting.

The pound was down 0.5% against the greenback at US$1.2668 just after midday.

But Connor Campbell at Spreadex pointed out that this was only a slightly larger decline against the dollar than seen earlier, while against the euro the pound was down 0.25% at €1.1210. "That the currency didn’t tank following the release of the data is another sign that its attentions currently lie in the political, rather than economic, world."

11:25am: PM race kicks off with naked electioneering

The ruling Conservative party has officially kicked off the process of finding a new leader and Prime Minister, with bookies’ favourite Boris Johnson looking to appeal to the party’s high-earning members with a juicy income tax cut.

Looking to seal the race to replace Theresa May, Johnson revealed that he aims to increase the higher-rate income tax threshold from £50,000 to £80,000.

“This leadership race was always going to see some pretty naked electioneering aimed squarely at core Conservative voters,” said Tom Selby, senior analyst at AJ Bell. “None of us should be surprised that bookies’ favourite to be next Prime Minister, Boris Johnson, is among the first to strip off.”

As well as noting that this would significantly benefit MPs, as their salaries currently stand at £79,568, Selby said higher earners would pay up to £6,000 less in income tax each year if the plans became policy and that retirement savings incentives would also be affected.

After May stepped down as PM on Friday, almost a dozen MPs were looking to become the party and the country’s next leader. They need to file their nominations on Monday with at least eight backers, with the whittling down of this initial group happening through the week, before a final two candidates are presented to the Tory members who make the final decision.

10.30am: Economists lowering expectations of BoE rate hike

After the release of worse than expected UK economic growth figures, economists were pushing back their interest rate expectations.

“Overall, the clear message is that underlying growth is pretty sluggish,” said Ruth Gregory at Capital Economics. “With the Brexit paralysis and a slowing global economy taking its toll, we doubt GDP will grow by much more than 1.5% or so in 2019 as a whole and expect interest rates to remain on hold until the middle of next year.”

While seeing the factors putting pressure on the economy as “temporary”, ING said rising uncertainty surrounding Brexit, the “fairly bleak” macroeconomic growth overseas and the growing likelihood of an autumn general election means the Bank of England is unlikely to raise rates this year.

“We therefore think it is unlikely that the Bank of England will hike rates during 2019, although we’d continue to flag that recent hawkish commentary from Governor Mark Carney suggests that a November move shouldn’t be 100% ruled out if Article 50 is extended further,” ING said.

9.30am: UK economy shrinks by more than expected in April 

The UK economy shrank in April by the most in nearly three years, the Office for National Statistics has revealed.

Gross domestic product (GDP) fell by 0.4% in April, the biggest monthly fall since March 2016, after a 0.1% drop in March.  Analysts had expected a 0.1% contraction.

The GDP report also showed UK manufacturing output fell by 3.9% month-on-month in April after a 0.9% increase in March.

Industrial production dipped 2.7% in April following a 0.7% rise in March.

Economists had predicted a 1.0% fall in industrial output and a 1.4% drop in manufacturing production.

The pound is down 0.3% versus the dollar at US$1.2691. 

8.45am: Week begins well for Footsie

The FTSE 100 got off to a solid start, advancing 39 points to 7,371.05, after President Trump stepped back from imposing trade tariffs on Mexico.

The mood was further lifted by better-than-expected export data from China and the belief that the US Federal Reserve is more likely to cut interest rates than raise them after Friday's weak US jobs report.

“It’s a sea of green as stocks rebound on Trump’s Mexican fix,” said Neil Wilson of Markets.com. “Investors are relieved at Mexico and the US coming to an agreement to avoid the latter slapping the former with tariffs, and this sent equity futures north.”

There was a muted response in London to news off United Technology and Raytheon’s US$120bn all-share merger. In the UK defence sector, BAE Systems (LON:BA.) was flat, while Babcock International (LON:BAB) nudged up 2%.

China’s exports growth was taken as good news for the Footsie’s miners with copper digger Antofagasta (LON:ANTO) leading the blue-chip stocks with a rise of 1.9%.

In the dog-house was Ferguson (LON:FERG), the building supplies group formerly known as Wolseley, whose third-quarter revenues missed forecasts. The shares were off 4%.

In a happier place were the formerly beleaguered investors in Thomas Cook (LON:TCG). The shares spike 19% higher after it confirmed reports that its major shareholder Chinese group Fosun - owner of Club-Med - is mulling a potential carve up of the tour operator.

Proactive news headlines:

AfriTin Mining Ltd (LON: ATM) has received a second batch of assay results from drilling at its Uis tin mine in Namibia. Among the most significant intercepts from the most recent five holes were 30.32 metres grading 0.20% tin and 91 parts per million tantalum, 109.32 metres grading 0.17% tin and 77ppm tantalum, and 53.83 metres grading 0.16% tin and 73ppm tantalum.

Union Jack Oil PLC (LON:UJO), a UK focused on-shore hydrocarbon production, development and exploration Company announces that Frazer Lang, Non-Executive Director, has tendered his resignation, which will take place with immediate effect. Frazer, who is also an Executive Director of Humber Oil & Gas Limited is leaving to devote more time to the running of Humber.

Russian regulatory authorities have approved Eurasia Mining plc’s (LON:EUA) feasibility study of permanent conditions for the Kluchiki Area of the West Kytlim project, where mining is currently ongoing.  The feasibility of permanent conditions is equivalent to a definitive feasibility study in Western mining reporting terms.

Seeing Machines Ltd (LON:SEE) technology will be installed as a safety feature in self-driving cars as part of a contract with an American manufacturer.

Redx Pharma (LON:REDX) has secured short-term funding with a loan of up to £2.5mln and is in talks to find a longer-term financing solution. Shareholder Moulton Goodies Ltd has agreed to provide the secured loan note facility, with £1mln being drawn down immediately. The coupon is 10% a year and there is an option to turn the debt into equity in certain circumstances.

Be Heard Group PLC (LON:BHRD) has bought a 20% stake in digital transformation consultancy, Digital Delivery Consulting Ltd, for £320,000 in cash.

Avacta Group PLC (LON:AVCT) has selected the cancer drug candidate that it will take into first-in-human clinical trials. This is an important milestone that means the Company remains on track to submit an investigational new drug/clinical trial application by the end of next year.

Live Company Group Plc (LON:LVCG) is to stage its first BRICKLIVE event in Aberdeen in September at the city's new exhibition centre. SMG Europe Holdings will promote the event at the P&J Live venue, a site that cost £333mln and contains 48,000 square metres of multi-purpose events space.

BATM Advanced Communications Ltd (LON:BVC) has entered into a new strategic technology partnership with Clavister, a cybersecurity specialist. Telco Systems, the software development and design business with BATM’s Networking & Cyber division, will work with Clavister to run a virtualised platform.

ValiRx Plc (LON:VAL) said it is carefully monitoring its working capital position as advanced talks to terminate a subscription agreement with European High Growth Opportunities Securitisation Fund continue.

OptiBiotix Health PLC (LON:OPTI) has struck a deal with a local distributor to market its ProBiotix arm’s cholesterol management products in Vietnam.

The countdown is on for the start of Eco Atlantic Oil & Gas Ltd’s (LON:ECO) (CVE:EOG) high impact exploration drilling campaign offshore Guyana. Eco, in a statement, told investors that the Stena Forth drillship has now been mobilised and is on its way to Guyana from West Africa.

Rainbow Rare Earths Ltd (LON:RBW) told investors that it has received an exercise notice from The Lind Partners LLC for the conversion of a US$900,000 loan facility. It means that the Company will be required to issue 26,290,251 new shares to Lind, giving an effective conversion price of 2.69p (versus Friday’s closing share price of 7.07p).

Strategic Minerals PLC (LON:SML) (USOTC:SMCDY) has not yet received a US$4mln payment that was due on 7 June 2019 from a buyer of material from the Company’s Cobre magnetite operation in the USA. The client has been keeping Strategic Minerals informed of procedural delays to its funding lines and continues to indicate that payment is imminent. However, despite the client's assurances, Strategic Minerals now considers that it is in the best interests of shareholders to prepare a claim against the client which is likely to seek damages in excess of the amounts due.

Benchmark Holdings PLC (LON:BMK), the aquaculture health, nutrition and genetics business, announced that, further to the announcement made on 29 May 2019,  it has completed the dissolution of its joint venture with AquaChile. The group said the dissolution has created an opportunity for it to take control of a land based salmon breeding facility belonging to the JV and the Company is in the process of conducting due diligence on the facilities, with transfer of ownership expected to take place in the coming weeks.

6.35am: FTSE 100 expected to start on front foot

The FTSE 100 looks set to start the trading week firmly in positive territory on the back of a slew of positive news.

Washington’s decision to suspend trade tariffs against Mexico lifted the mood, while better than expected export figures from China also helped sentiment.

At the same time the market is interpreting Friday’s below US par jobs number as another potential trigger for a rate cut after the Federal Reserve’s dovish ‘cooing’ last week.

However, Robert Carnell, Dutch bank ING’s chief economist for the Asia region, believes the current exuberance is misplaced and oddly irrational.

“It's a bit like a game of chicken, where you watch the oncoming financial car-crash, but take solace from every snippet of bad news that comes along, because it raises the prospect of a ‘Fed put’,” he said of Friday’s nonfarm payrolls miss.

“But if we have learned anything at all since the global financial crisis (and I do wonder sometimes if we have learned anything) it is that the Fed isn't terribly good at mopping up a mess.

“It isn't their fault, and they do it better than most other central banks. But "financial janitor" simply isn't an efficient use of a central banks' time. Realising this, equity bulls might want to rethink their elation at a weak payrolls figure.”

Looking at the week ahead, there is a smattering of blue-chip news with Tesco (LON:TSCO), British American Tobacco (LON:BAT) and Ferguson (LON:FERG), the builder’s merchant formerly known as Wolseley, leading the way.

Significant events expected on Monday:

Trading update: Ferguson Plc (Q3) (LON:FERG)

Interims: Codemasters Group Holdings PLC (LON:CDM)

Traffic figures: International Airlines Group PLC (LON:IAG)

AGMs: Angling Direct PLC (LON:ANG)

Economic data: UK industrial, manufacturing production; construction output; UK monthly GDP; UK balance of trade

Around the markets: 

  • Pound worth US$1.2706 (flat)
  • Gold US$1,332.10 per ounce, down $14
  • Brent crude US$63.72, up 43 cents

City Headlines:

Financial Times

  • United Technologies Corp and Raytheon agree US$120bn all-share merger
  • Renault to block Nissan’s governance overhaul - Jean-Dominique Senard’s move threatens to further inflame relations between alliance partners
  • KPMG reported to accounting watchdog by ex-employee
  • FCA says fund rules may need to change after Woodford meltdown

Times

  • The firm behind Neil Woodford’s suspended investment fund has faced two employment tribunal claims from disgruntled workers, including one over alleged sex and race discrimination
  • Small companies fear year of stagnation
  • America’s giant technology companies have been warned by the G20 that loopholes used to minimise their tax bills could be closed by next year
  • BT wants to join the party with Netflix rival
  • High streets feel chill as poor weather takes toll on shoppers

Daily Telegraph

  • British Steel keeps fires burning on life support but it could be worth more if sold off in pieces
  • Trade war and debt mountains threaten global economy, warns IMF boss Lagarde
  • Revealed: The true scale of Britain's automotive job losses will be 60,000
  • Nokia and Ericsson plan emergency break-up over trade war and security fears

Guardian

  • Greenpeace activists board BP oil rig as it is towed out to sea
  • Hargreaves Lansdown apologises to clients in Neil Woodford funds
  • Channel 4's move out of London will cost at least £50mln

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