FTSE 100 finishes in red as China growth worries hit global equities

Top laggard on Footsie was oil services giant Wood Group, which shed 4.09% to 524.80p

London skyline
Global stock markets saw red Tuesday
  • FTSE 100 index closes down 69

  • Wood Group and Shell downgraded by Morgan Stanley

  • US stocks also lower

FTSE 100 closed in the red Tuesday as concerns about  Chinese growth hit stocks on this side of the Pond and the US.

Footsie closed down  around 69 points at 6,901, also weighed on by the strong pound after positive UK jobs data released earlier in the day. FTSE 250 also went south, shedding around 81 points at 18,681.

On Wall Street, the Dow Jones Industrial Average is down almost 297 at the time of writing, while the S&P 500 index is also off nearly 34 points.

Top laggard on Footsie was engineering and oil services firm Wood Group (NYSE:WG.), which shed 4.09% to 524.80p, after a downgrade from broker heavyweight Morgan Stanley.

3.44pm:Footsie fall extends

The Footsie’s fall has extended to 1% with resource stocks leading the retreat on fears over global economic growth.

The FTSE 100 was down 70 points (1.0%) at 6,900 and just about clinging on above the 6,900 level.

“Stocks are in the red as the concerns about China’s economy are still doing the rounds. The fear of a global slowdown is playing on traders’ minds,” commented David Madden at CMC Markets.

John Wood Group PLC (LON:WG.) was the worst performing blue-chip, shedding 4.2% at 524p after Morgan Stanley downgraded the stock to ‘neutral’ from ‘outperform’.

The same broker also stuck the knife into index heavyweight Royal Dutch Shell (LON:RDSB), downgrading it to ‘underweight’ from ‘equal weight’; the shares were the fourth worst performers on the Footsie, falling 2.6%.

Steel-maker Evraz plc (LON:EVR) tumbled 15.1p to 448.7p on the aforementioned concerns about Chinese economic growth.

The biggest riser of the day in the whole market was loo rolls maker Accrol Group Holdings PLC (LON:ACRL), which shot up 43% after it predicted a return to profitability in 2019.

In a separate announcement, Accrol said its chief financial officer (CFO), Steve Townsley, had stepped down due to health reasons and would be replaced by Hannah Argo as interim CFO.

2.45pm: US indices open sharply lower

US indices opened around 0.6% lower, contributing to worsening sentiment in the UK.

The FTSE 100 fell to its lowest level of the day, down 60 points (0.9%) at 6,910 as US indices opened on the back foot.

The Dow was down 141 points at 24,558 and the S&P 500 was 17 points lower at 2,654 as the US government shutdown extended into its 31st day.

Shares in Smith & Nephew PLC (LON:SN.) were off 2.4% at 1,435.5p after it completed the acquisition of Ceterix Orthopaedics, the developer of the NovoStitch Pro Meniscal Repair System.

Smith & Nephew is initially paying US$50mln for Ceterix, which could rise to US$105mln over the next five years, depending on performance.

London Stock Exchange Group PLC (LON:LSE) was off 36p at 4,471p after announcing leadership changes in its information services division that will see the founder of FTSE, Mark Makepeace, step down from his role as director of the division.

Waqas Samad, the chief executive officer of benchmarks at FTSE Russell, will succeed Makepeace.


1.30pm: The Footsie pares its losses

The FTSE 100 has pared its losses and is now hovering around 6,945, down 24 points.

“A wave of risk aversion swept across financial markets today with global equities retreating as pessimism over global growth sapped risk sentiment,” said Lukman Otunuga, a research analyst at FXTM.

“The International Monetary Fund’s recent gloomy global growth outlook left a bitter aftertaste while Brexit-related uncertainty and a prolonged US government shutdown drained investor confidence,” the analyst added.

Morgan Stanley chose an interesting day to downgrade low-cost airline easyJet PLC (LON:EZJ) to ‘underweight’ from ‘equal weight’ and cut its price target to 1,290p from 1,600p. EasyJet shares were the best performers among blue-chips, rising 75.5p to 12,237p following a reassuring trading update.

Sector peer International Consolidated Airlines (LON:IAG) also defied the trend, rising 0.1% to 622.2p, even though Morgan Stanley downgraded it to ‘underweight’ from ‘equal weight’ and cut its price target to €6.50 from €7.

In other broker action, JPMorgan added Lloyds Banking Group PLC (LON:LLOY) to its “top overweights” list (must be all that Christmas pudding) of its European best equity ideas.

Lloyds was down 0.5% at 57.71p.

12.10pm: Sterling's strength takes the shine off many blue-chips

The Footsie was trading close to its intra-day low as sterling’s strength took the shine off many blue-chip equities.

The FTSE 100 was down 41 at 6,930, just five points above its low point for the day.

“A very strong UK jobs report gave a Brexit-bored pound a boost on Tuesday, transforming the FTSE’s session in the process,” reported Connor Campbell a Spreadex.

“Wage growth, including bonuses, hit 3.4% between September and November; that’s the best reading in a decade, and way up on the 2.5% growth posted for the same period this time last year. On top of that, the unemployment rate dropped back to 4.0%, with employment at an all-time high of 75.8%.

“That gave the previously lethargic sterling a reason to smile. Cable crept above $1.29 as it rose 0.2%, while against the euro the pound crossed €1.1365 after climbing the same amount. Those gains were capped by the ongoing Brexit brouhaha, the latest development being a warning from Stephen Barclay that the EU may not agree to an extension of Article 50 as some factions are hoping,” he added.

“Still, the pound’s gains were enough to upset the FTSE. Well that, and Brent Crude’s widening losses, the black stuff tumbling 2% thanks to the concerns surrounding the Chinese economy. With BP and Shell dropping 1.5% and 2.1% respectively, and its miners posting similar falls, the FTSE shed half a per cent, forcing the UK index back towards 6900,” Campbell said.

The FTSE 250 has fewer multi-national companies among its membership and is, therefore, less susceptible to shows of strength by sterling; it was up 5 points at 18,767, despite spread betting firm IG Group Holdings PLC (LON:IGG) and Sirius Minerals PLC (LON:SXX) both posting falls of more than 6% following updates today.

IG has been laid low by regulatory pressures that caused a heavily telegraphed drop in revenues for the half year while Sirius came under selling pressure after it revealed the financing of its Yorkshire polyhalite project will rely less on UK government debt financing.

Liberum Capital Markets seemed unperturbed by debt financing developments, however, and reiterated its ‘buy’ recommendation for Sirius and 50p target price.

“Given the progress that management has achieved in all aspects of the project, we remain confident that Sirius will obtain stage 2 financing before the end of the first quarter,” the broker said.

“Given its strategic importance to investment and jobs for the "Northern Powerhouse" policy, it remains a priority focus for the Government to see the work done. Following Theresa May's defeat on her Brexit deal, it was the Sirius Minerals project that was one of the first questions to be asked at PMQs [prime minister’s question time],” the broker noted.

“The collapse of two proposed nuclear plants, whose financing requirements are longer dated and more complex, only drives Government harder to deliver investment in the North,” it added.

10.45am: US indices expected to open on the back foot

The top-shares index continued to paddle along slowly in the red ahead of what is expected to be a soft start on Wall Street.

The FTSE 100 was down 34 points (0.5%) at 6,936, despite some encouraging employment data.

“Wage growth remained steady at 3.3% excluding bonuses, which means with inflation falling back incomes are rising at 1.1% in real terms. While the number of job vacancies continued to rise, hitting an estimated 853,000 between October and December – the highest level since records began in 2001. All of this is good news for investors in UK companies as it should help to underpin consumer spending,” predicted Ian Forrest, an investment research analyst at The Share Centre.

ING Economics, meanwhile, claimed that “UK wage growth continues to be a relative bright spot in an otherwise lacklustre economic story, but the increasing uncertainty surrounding Brexit means the Bank of England is unlikely to hike rates any time soon”.

Philip Smeaton, the chief investment officer at Sanlam UK, said tightness in the domestic labour market is “exacerbated by Brexit disincentivising foreign workers, making it harder for firms to attract people”.

“As pay continues to outstrip inflation, with the high-street still struggling after an underwhelming Christmas, more discretionary spending from consumers would be a timely boost for UK businesses,” he added.

Meanwhile, James Hughes at Axi Trader is looking across the water to the resumption of trading in the US after yesterday’s public holiday.

“Wall Street returns after is long weekend break and futures markets show that the downbeat mood continues to prevail; however, there has been something of a bounce back in the last couple of hours, suggesting that traders aren’t ready to rush for the exits just yet,” Hughes noted.

“Christine Lagarde’s assessment of global economies delivered in Davos yesterday certainly had a theme of the glass being half full and talk of recession is being circumvented, although with the US/China trade spat seen as a driving force in the slow down and hopes of a sweeping resolution to the issue fading, questions must be asked as to whether the optimism is misplaced.

“The US government shut down shows no signs of concluding either, again adding to the air of caution as 800,000 Federal workers are facing another missed pay cheque. With this disruption impacting the wider economy too, again there’s a need for caution as to upside potential for stocks,” he added.

Axi trader is predicting the Dow will open down 146 points from Friday’s close at 24,560 with the S&P down 16 points at 2,655.

9.45am: Investors not impressed with record-breaking jobs data

The FTSE 100’s attempted rally ran out of steam, coincidentally round about the time unemployment and wages data were released.

The FTSE 100 was down 20 at 6,950.

The unemployment rate fell to its lowest level since 1975 at 4.0% while the number of people in work reached a record high at 32.5mln in the three months to November.

Average earnings excluding bonuses increased by 3.3% year-on-year.

“Employment rose at an increased rate of 141,000 in the three months to November. This was a marked improvement following an increase of 79,000 in the three months to October, a modest rise of 23,000 in the three months to September and a drop of 5,000 in the three months to August (which had been the first decline since late-2017). Indeed, it was back in line with the sharp increases seen in the first half of 2018 (such as 146,000 in the three months to May),” noted Howard Archer, the chief economic advisor to the EY ITEM Club.

“Earnings growth extended its recent firmer trend in November, indicating that the tight labour market is pushing up pay - after suffering a relapse earlier this year. There is certainly survey evidence that labour market tightness is pushing up starting salaries and pay for workers switching jobs. The monthly REC/IHS Markit Report on Jobs indicated that starting salaries for people placed into permanent jobs increased at one of the fastest rates in three years in December, although it had come off its recent high,” Archer said.

“However, employers currently appear to be still only offering modest pay increases for their existing staff. In their December survey of business conditions, the Bank of England’s regional agents reported that ‘Pay settlements continued to be slightly higher than a year ago, and remained in a range of 2½%–3½%. Despite the tightening labour market, many contacts managed to contain pay bill growth by targeting pay awards at key skills or staff’. Additionally, a survey released in November by the Chartered Institute of Personnel and Development (CIPD) indicated that employers plan to raise pay by only 2% over the coming year, the same as three months ago,” he continued.

“It appears that some companies have been encouraged in giving modest pay rises to existing staff by a reluctance of many workers to change their jobs amid heightened economic uncertainties, with Brexit being a significant factor in this,” Archer concluded.  

9.15am: Resource stocks and banks drag the Footsie lower

Resource stocks and banks dragged London lower in the first hour of trading.

The FTSE 100 was down 20 points at 6,951, with oilfield support services firm John Wood Group PLC (LON:WG.) and mining titan BHP Group PLC (LON:BHP) the top two fallers.

The latter was down 1.8% at 1,582p after its half-year operational review, though in all probability market makers were more likely to be thinking of the International Monetary Fund’s cut to global growth forecasts when they marked down the shares than BHP’s iron ore production.

At the other end of the Footsie leader-board was easyJet PLC (LON:EZJ), which was up 3% at 1,196.5p after it reassured the market that full-year profits would meet market expectations.

READ easyJet takes £10mln hit related to drone chaos at Gatwick Airport

Away from the big caps, Sirius Minerals PLC (LON:SXX) eased 2.7% to 21.77p after updating the market on talks over debt financing of the group’s fertiliser mining project.

8.45am: Dull early progress

The FTSE 100 succumbed to Asia’s second-day hangover from China’s poor economic performance as the blue-chip index lurched 27 points lower to 6,943.67.

The International Monetary Fund reminded the US that the poor performance of the world’s second-largest economy – which advanced at its slowest pace since 1990 – would impact on the rest of the world.  

The IMF predicted the global economy would expand by 3.5% in 2019, down from 3.7% previously.

It left the UK unchanged at 1.5%, but only because it couldn’t predict the impact of Brexit.

Later this morning, the market will be provided with some guidance to the health of the British economy with quarterly labour market statistics set to show the unemployment rate static at 4.1%.

On the market, the miners, whose fortunes are linked closely to China, were on offer with BHP Billiton (LON:BLT) near the top of the losers’ pile with a 1.5% decline after a production update.

Supermarket groups J Sainsbury (LON:SBRY) and Morrisons (LON:MRW) still had some defensive appeal as they topped the risers’ column, advancing 1.6% and 1.3% respectively.

IG Group (LON:IGG) said it had been affected by a regulatory clampdown affecting all the spread betting and CFD firms as its shares slid 10%.

Moving down to the small-caps, ZOO Digital (LON:ZOO), which specialises in subtitling and dubbing, saw its value collapse by 46% in early deals after it sounded the earnings alarm.

Proactive news headlines:

ECSC Group PLC (LON:ECSC) has reported revenue growth of 30% for the 2018 fiscal year, helped by record levels of trading in the fourth quarter.

The optimisation study for the Parys Mountain copper, zinc, lead, gold and silver project on the island of Anglesey is progressing well, according to Anglesey Mining plc (LON:AYM).

Sirius Minerals PLC (LON:SXX) told investors it is making progress with the US$3bn debt financing that’s needed to deliver the group’s Yorkshire fertiliser mining project.

Learning Technologies Group PLC (LON:LTG) said adjusted underlying earnings (EBIT) for the year just ended will be significantly ahead of expectations.

Marketing automation firm Dotdigital Group PLC (LON:DOTD) remains on track to hit profit forecasts despite the well-documented high street troubles taking its toll on a few of its retail clients.

Instem PLC (LON:INS), which creates and sells software used by drug developers, said orders for its SEND platform grew 500% year-on-year as it told investors 2018 trading had been in line with forecasts.

Blockchain and cryptocurrency investor KR1 PLC (LON:KR1) has invested a total of US$250,000 into new ventures comprising a data collaboration framework and a decentralised exchange platform.

Shefa Yamim (LON:SEFA) has two of its prospecting permits renewed, covering a total of 44,045 hectares, by the Ministry of Energy, Natural Resources Administration, Israel.

Shield Therapeutics PLC (LON:STX) has appointed James Karis as its new non-exec chairman. Karis has been on the board for three years already and chairs the remuneration committee.

Custodian REIT PLC (LON:CREI), the UK property investment company, has extended its revolving credit facility with Lloyds Bank.

SIMEC Atlantis Energy Limited (LON:SAE) announced that it has appointed Ian Wakelin as an independent non-executive director and chairman of its Audit Committee with immediate effect, with Ian Macdonald, who has acted in those roles since 2014 having stepped down from the board. SIMEC Atlantis also announced the appointment of JPMorgan Cazenove as adviser and joint broker to the group with immediate effect.

Kibo Energy PLC (LON:KIBO), the multi-asset, Africa focused energy company, announced that it will be hosting an investor event on 30 January 2018 from 7.00pm at a venue in the City of London, presenting the opportunity for investors to meet with the company's management.

6.45am: Slow start predicted 

The FTSE 100 is set to start Tuesday on the back foot, pulled down by negativity in Asian markets following weaker economic stats out of China.

CFD firm IG Markets sees the London’s index down about 17 points calling the price at 6,941 to 6,945 with over an hour to go until the open.

Wall Street was closed for the Martin Luther King Day public holiday.

In China, economic figures revealed a growth rate of 6.6% over 2018 which marks the slowest rate of expansion in the country in almost thirty years.

“The mood in Europe was downbeat as disappointing growth figures from China overnight prompted dealers to lock in some of the gains made at the back end of last week,” said David Madden, an analyst at CMC Markets.

“The cooling comes at a time when Beijing and Washington DC are locked in a trade dispute.

“On Friday, it was revealed that China offered to readdress the trade imbalance with the US, but now some investors feel that was unrealistic. Optimism in regarding US-China relations has faded a little.”

Japan’s Nikkei was down around 96 points or 0.47% trading at 20,622 whilst Hong Kong’s Hang Seng fell over 300 points or 1.17% to 26,878 and the Shanghai Composite was 1.42% lower at 2,573.

In London, attentions are naturally on Brexit, Theresa May and a ‘Plan B’ that looks a lot like ‘Plan A’.

Significant announcements expected Tuesday:

Trading updates: easyJet PLC (LON:EZJ), Dixons Carphone Plc (LON:DC.), Cairn Energy PLC (LON:CNE), Close Brothers Group PLC (LON:CBG), Midwich Group Plc (LON:MIDW)

Interims: IG Group Holdings PLC (LON:IGG), Accrol Group Holdings PLC (LON:ACRL)

Finals: Velocity Composites PLC (LON:VEL)

Economic data: UK unemployment, average earnings data; UK public sector finances; US existing home sales

Around the markets:

  • The pound: US$1.2878, down 0.11%
  • Gold: US$1,279, down 0.16%
  • Brent crude: US$62.07, down 1%
  • Bitcoin: US$3,524, down 0.1%

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