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FTSE 100 closes in the red amid heightened trade worries

The UK index of leading shares closed around five points lower at 7,678

Brexit
FTSE 100 closed slightly in the red on Friday
  • FTSE 100 closes in red

  • Barnier says UK Brexit white paper contains "useful elements"

  • Pound gains

3.30pm: Michel Barnier: "useful elements"

The European Union’s chief negotiator Michel Barnier has said the UK’s white paper on its future relationship with the bloc contains “useful elements” but added that it also includes ideas that are contradictory to its negotiating stance.

Barnier said the proposal had “several elements that open the way for a constructive discussion”, including plans for a free trade deal, a commitment to common standards, and guarantees on fundamental rights.

He added that the document raised questions on whether the UK’s proposals were compatible with basic EU principles, their workability, and whether they would be in the economic interest of the remaining 27 member states.

2.45pm: Wall Street sees mixed open

The main US indices saw a mixed open to close out the week as investors turned cautious following uncertainty over the US government’s attitude to trade and the monetary policy of the Federal Reserve.

The Dow Jones Industrial Average was down 64 points at 24,996 shortly after the open, while the S&P 500 was down 1.2 points at 2,803. The Nasdaq saw a slightly more positive start and was up 13 points at 7,837.

2.00pm: US stocks struggling for direction ahead of open as trade tensions reverberate

Wall Street seemed to be in a bit of tangle ahead of the open as Trump’s latest trade comments have left markets struggling for a sense of direction.

Despite growth in corporate profits and recent strong economic data, the trade war has continued to loom heavily over sentiment as investors continually worry over the potentially massive impact on business spending and growth that a trade war could bring.

The recent drama regarding Trump’s comment on the Federal Reserve’s interest rate rise hasn’t helped matters either as it has the potential to dampen what has until now been a strong period for the dollar against other major currencies.

Jasper Lawler, head of research at London Capital Group, said that despite the fact that the US president doesn’t usually comment on monetary policy (as the Fed is meant to be independent), it is perhaps not surprising the Trump would break this convention.

He added that the Fed’s chair, Jerome Powell, would be “unlikely to change his decision making just because Trump wants a weaker dollar. At the margins, there is a tiny chance that some policy makers are less inclined to hike on the back of Trump’s comments, but this risk is extremely small”.

12.30pm: Oil price slips as trade war rhetoric raises fears of lower demand

The Brent crude oil price dipped 14 cents to US$72.44 a barrel this morning after an escalation in trade war rhetoric increased fears of lower oil demand from the US and China.

As the two economies are some of the biggest consumers of oil, any economic slowdown resulting from trade tariffs would weigh heavily on markets.

However, the fall was tempered by some positive news from OPEC’s largest producer, Saudi Arabia.

The kingdom has said that it expects its oil exports to fall by around 100,000 barrels per day in August as part of a plan to ensure that it does not push more oil into the market than is needed by consumers.

In a statement, Saudi Arabia’s OPEC governor Adeeb Al-Aama said there would be “substantial stock draws due to robust demand and seasonality factors in the second half [of the year]” despite oil market being “well balanced” in the third quarter.

12.00pm: FTSE 100 plunges into the red on trade war fears as morning closes

The Footsie has dropped back into the red as the morning draws to a close after trade war comments from Donald Trump yet again rattled markets.

In an interview with CNBC the US president said that he was “ready to go to 500” (a reference to the US$505.5bn in Chinese goods the US accepted last year), adding that he would be willing to impose tariffs on every dollar of imports from China if he has to.

Trump also decided he would turn his ire on the US Federal Reserve, saying he was “not thrilled” that the Fed had raised interest rates in a move that some analysts believe could put the brakes on the recent rally for the greenback.

Connor Campbell, financial analyst at Spreadex, said: “[Trump’s trade war comment] turned a previously somnolent session into another red-soaked mess, with the markets taking a dive almost immediately after the interview went out.”

He added that Trump’s comment on the Fed had somewhat negated the traditional safe haven of the dollar, thus leaving currency markets “completely placid”.

Meanwhile, UK prime minister Theresa May has criticised the EU for its lack of engagement with her Brexit white paper and implementing a deal around the Irish border, saying the current proposal from the EU was “unworkable” in the text of a speech to be delivered in Belfast.

Sterling has also been under pressure after a series of economic indicators have cast doubt over whether the Bank of England will raise interest rates in August, a decision that up until last week seemed relatively certain.

10.45am: May demands new deal with EU over Irish border ‘backstop’

UK prime minister Theresa May is set to call on the European Union to strike a new deal in order to prevent a so-called ‘hard borer’ between Northern Ireland and the Irish Republic, while also demanding the bloc respond to her Brexit white paper to avoid a no-deal Brexit.

In a speech to be delivered in Belfast, May said while she accepted that a hard border needed to be avoided, the EU’s current plan was “unworkable” and that it must engage with her policy document released earlier this month which proposes negotiating the closest possible commercial links for goods trade to protect businesses and to fulfil a commitment to avoid having infrastructure on the border.

The EU’s “backstop” solution, which has been rejected by May, proposes that Northern Ireland would remain closely aligned with the EU’s single market and customs union on the grounds that it would create a border between Northern Ireland and the rest of the United Kingdom.

10.15am: FTSE 100 consolidates early gains; Sirius Minerals bolsters mid-cap index

It is hard to get excited by public sector finances – and the market was predictably unmoved by the June update on the public sector.

The FTSE 100, which has the look of a commuter who has picked his seat and does not intend to budge much, was up 20 at 7,704, a point or so below its intra-day high.

Public sector net borrowing (excluding public sector banks) in the latest full financial year (April 2017 to March 2018) was £39.4 billion.

The total was £6.3 billion less than in the previous financial year (April 2016 to March 2017) and £5.8 billion less than official (Office for Budget Responsibility) expectations and is the lowest net borrowing since the financial year ending March 2007.

Traders – even equity traders – were more interested in the ups and downs of the foreign exchange market after president Trump's unprecedented – but not unexpected – trampling on the toes of the Federal Reserve.

“The dollar starts Friday on the back foot after Donald Trump broke with tradition (amazingly) and criticised the Fed for raising rates and once again laid into the EU and China about their currency weakness – i.e. dollar strength,” commented Neil Wilson at Markets.com.

“The comments in the interview may well worry Fed watchers and policymakers given the implicit meddling in their affairs. It may be that someone has just explained yield curve inversion and recession risk to him, but really you cannot help feel this is less about criticising the Federal Reserve for monetary policy decisions and more about attempting to cool the dollar’s ascent. In Jay Powell, his pick is in the Fed chair and the pace of tightening has been no quicker than markets have been broadly anticipating this year,” Wilson observed, adding that it is clear that Trump wants a weaker dollar.

On the equities side there was not a lot shaking at the top-end of the market, leaving the field clear for mid-caps, such as Beazley PLC (LON:BEZ) and Sirius Minerals PLC (LON:SXX).

It is hard, some say, to get excited about Lloyd's of London underwriters but Beazley added a bit of unwanted excitement to the sector as it fell 5.6% on the back of a disappointing half-year results statement.

READ Beazley weak as half-year profit drops by 64% reflecting plunge in investment income

In contrast to Beazley, Sirius Minerals is Excitement City, Arizona,

The company, which is developing a polyhalite project in North Yorkshire, rose 1.9% to 34p as it inked a new supply deal.

READ Sirius Minerals unveils Chinese fertiliser sales deals

“Mining projects are never straightforward ventures as they can cost a lot of money to build and can be tricky to run once operations are underway. Obtaining the money is typically subject to lots of complicated terms and conditions – essentially companies like Sirius have to jump through many hoops before they can get their shovels ready and start digging,” said Russ Mould, the investment director of AJ Bell, explaining a bit of company history.

“Sirius is currently trying to raise up to $3bn in debt finance to help support construction of the large project and banks won’t lend it the money until it has secured more future supply agreements.

 

“Fortunately it is nearly over the hurdle thanks to two new off-takes deals with Chinese parties. The target for the current financing round is to lock in future supply deals accounting for 6m to 7mln tonnes per year of Poly4, Sirius’s multi-nutrient fertiliser made from polyhalite. The latest deals now take the total to 5.7mln tonnes,” Mould said.

8.45am: Low-key start for Footsie

The summer holiday lull appears to have set in early with the FTSE 100 trading at 7,693.68, up just 10 points.

Perhaps it is the calm before the storm with 15 blue-chip companies reporting next week alongside a welter of second-tier businesses.

President Trump has been shooting his mouth again – criticising the Fed for lifting interest rates, while having a trade-related pop at China and the EU.

Luckily there was little collateral damage other than a minor dent to the US dollar, which was in reverse gear, although so was the pound after recent UK data dented expectations for a UK rate hike at next month's Bank of Englnd Monetary Policy Committee meeting..

The day’s big casualty was to be found on the FTSE 250 with Lloyd’s of London insurer Beazley (LON:BEZ) off 10% after a stinker of a results statement in which profits were sharply lower.

Proactive news headlines:

Mosman Oil And Gas Ltd (LON:MSMN) has updated investors on the Stanley-1 well which continues to be drilled. The company told investors that drilling began on Thursday and it expects the planned depth of 7,000 feet will be reached within the next two weeks.

Sirius Minerals PLC (LON:SXX) has inked a new supply deal for the fertiliser that will be produced from the group’s new mine in Yorkshire. Chinese customers  Eiliseng and YSA have signed up for a long term supply deal for a total of 2mln tonnes of the POLY4 product per year over a ten year contract - the former will receive 1.2mln tonnes and the latter takes 800,000 tonnes.

Bango plc (LON:BGO), the mobile commerce company, said end user spend (EUS) this year has continued its trend of at least doubling every 12 months. The total EUS for the first half of 2018 was £220mln compared with £92mln in the first half of 2017 and £271mln for all of 2017. As in previous years, EUS in the second half of the year is expected to be significantly higher than in the first, Bango said.

Keywords Studios PLC (LON:KWS) has acquired Snowed In, a provider of engineering and co-development services for the video game industry based in Ottawa, Canada.

Employee benefits and insurance specialist Personal Group PLC (LON:PGH) saw first-half trading improve in all three of its divisions. Personal started to supply its own reward and recognition, retail discounts and cinema tickets having previously used third parties, which raised revenues and improved margins across some offers, said Mark Scanlon, chief executive.

Providence Resources PLC (LON:PVR) has detailed encouraging technical insights regarding the large Dunquin South prospect, in the Porcupine basin, offshore Ireland. It follows the completion of the initial evaluation of new 3D seismic, shot last year, which has improved the explorer’s understanding of the area.

KEFI Minerals (LON:KEFI) said Harry Anagnostaras-Adams is relinquishing the role of executive chairman to become managing director. His deputy, and senior independent director, Mark Wellesley-Wood, is stepping up to the job.

David Crabb, the chief executive of Feedback plc (LON:FDBK), is leaving the specialist medical imaging group with immediate effect.

PCG Entertainment (LON:PCGE) (NEX:PCGE) has announced the re-appointment of Damson Communications as public relations and investor relations adviser with immediate effect. Damson had previously provided this service to the Company from the time of IPO until November 2016.

6.45am: All quiet on the western front

It was all quiet on the western front on Friday morning with UK share prices expected to open little changed.

After advancing 8 points to 7,684 yesterday, the FTSE 100 was expected to give back some of those meagre gains, opening at around 7,681.

A lot more was going on in the foreign exchange markets, where sterling has been under pressure after a string of economic indicators raised doubts over whether the Bank of England would raise interest rates next month – a decision that last week looked nailed on.

Meanwhile, in the US, president Trump has been breaking protocol again by treading on the toes of the Federal Reserve – ostensibly an independent body that has free rein to set interest rates.

Trump told CNBC he was “not thrilled” by the Fed raising interest rates; Dutch finance house ING said Trump's comments would most likely mark a top in the US dollar's rally.

“We suspect the President's comments on US interest rates and currency markets will almost likely put an end to the USD rally – and in the absence of any immediate escalation the global trade war, it’s a mini-lifeline for EM [emerging markets] and high-beta (risky) currencies elsewhere. We’d always been wary of the administration’s desire for a weaker USD – and that an implicit ‘weak USD policy’ in itself could become self-fulfilling,” ING said.

“Indeed, this draws parallels to what we saw in January 2018 – when Treasury Secretary Mnuchin let slip about a ‘weaker US dollar’ being desirable for US trade. Moreover, Donald Trump's mercantilist views shouldn’t be new news to USD markets – we heard the President talk down the US dollar and cite a desire for low interest rates even as far back as in April 2017,” ING added.

Overseas markets weaker

US equity markets saw their recent good run come to an end yesterday with the Dow Jones down 135 at 25,064 and the S&P 500 down 11.1 at 2,804.5.

In Asian markets, where it was drawing towards the end of the trading day, the Nikkei 225 in Japan was down 191 at 22,574 while in Hong Kong the Hang Seng index was down 95 at 27,916.

Back home, the end of a fairly busy week, particularly for economic data, will finish more quietly, with just the latest UK public sector finance numbers due for release after a week that saw inflation, average earnings, and retail sales growth all remain subdued.

Public sector net borrowing (excluding public sector banks) in the current financial year-to-date (April 2018 to May 2018) was £11.8bn, £4.1bn less than in the same period in 2017, and the lowest April to May year-to-date net borrowing since 2007.

That downward trend in borrowing is expected to continue, but while the numbers are crucial for the UK government as it struggles to deliver a Brexit strategy, it should have little impact for the Bank of England’s monetary policy, with the rest of the week’s data having reduced expectations that a UK rate hike could be forthcoming at the central bank’s next meeting the week after next.

Sharp decline in Beazley profits expected

The corporate diary also looks fairly scant, with just a smattering of results and trading updates on the agenda.

Among them, Lloyds of London insurer Beazley PLC (LON:BZY) is expected to report a sharp decline in half-year results as investment losses and lower reserve releases pressure its earnings.

Analysts at Peel Hunt have pencilled in a 65% drop in first-half pre-tax profits to US$55mln, which includes US$54mln of unrealised investment losses, a function of negative mark-to-marking of the bond portfolio as interest rates rise.

Significant events expected on Friday July 20:

Interims: Acacia Mining PLC (LON:ACAA), Beazley PLC (LON:BZY)

Trading updates: KCOM Group PLC (LON:KCOM), Record PLC (LON:REC)

AGM: Homeserve PLC (LON:HSV)

Economic data: UK public sector finances; Baker-Hughes US rig count

Around the markets

  • Sterling: US$1.3032, up 0.17 cents
  • 10-year gilt: yielding 1.189%
  • Gold: US$1,221.20 an ounce, down US$2.80
  • Brent crude: US$72.77 a barrel, up US$0.19
  • Bitcoin: US$7,440.70, up US$19.99

Business headlines

The Times

Public to be warned every week over no‑deal Brexit

Trump plans summit with Putin in the White House

Drug advisers back medical marijuana

Royal Mail sent message by scale of revolt over pay

Comcast quits bidding for Fox assets and vows to focus on Sky

Trump tells Fed not to raise rates

Daily Telegraph

Virgin Media attacks 'dinosaur' BBC as four million homes face UKTV blackout in fees row

Gaucho collapses into administration, closing Cau restaurants and axing 540 staff

Sports Direct's Mike Ashley warns he will 'smash into Debenhams' for ignoring his advice

Microsoft tops estimates in quarterly results as cloud revenue surges

Uber's top finance executive leaves for food startup DoorDash

The Guardian

Facebook to publish data on Irish abortion referendum ads

Donald Trump lambasts EU over $5.1bn fine for Google

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