FTSE 100 closes down 183 points
US indices slump as China lets yuan drop
Next PLC defies trend after price target hike
5.15pm: Trade war trumping
The FTSE 100 index tanked on Monday, along with other global indices, as the trade war between the US and China kicked up a gear.
The UK's index of leading shares closed down over 183 points at 7,223.
It came as China allowed its national currency to fall against the US dollar to ten-year lows in what is being seen as payback after the US president announced additional tariffs on Chinese goods last week.
"The Peoples Bank of China (PBoC) have previously propped up the yuan, and their inaction has been seen as currency manipulation in the eyes of President Trump," said David Madden, market analyst at CMC Markets.
Meanwhile, Beijing also told Chinese firms not to purchase US agricultural goods.
"The trade war is heating up, and dealers are fearful the dispute will drag on for the foreseeable future," added Madden.
On Wall Street, the Dow Jones Industrial Average was down over 605 points at the time of writing at 25,879, while the tech heavy Nasdaq shed 245 points at 7,760.
3.30pm: US stocks in the red
Bazinga! The Dow Jones was down 471 points (1.8%) at 26,014 in early deals as US investors took their chance to join the equity rout.
The broader-based S&P 500, down 55 points (1.9%) at 2,877, was just as hard hit.
“The big event last week was all set to be the Fed’s decision to cut rates by 0.25%, the first reduction since the financial crisis. Instead, President Trump hijacked events with his unexpected announcement that the US will impose a 10% tariff on an additional US$300bn of Chinese imports from 1 September, on top of the 25% tariff already in place on $250bn of Chinese imports,” explained Rupert Thompson, the head of research at asset management firm, Kingswood.
“China has not surprisingly said it will retaliate. Whilst it is running out of goods on which to impose tariffs because of the trade surplus it runs with the US, it has other levers to pull. It can make life much more difficult for US businesses operating in China and it can also allow its currency to weaken. Indeed, the yuan has just fallen through a key level,” he added.
The Dow Jones Industrial Average is down around 500 points in early trading on Wall Street.
— 24/7 News (@24_7_News) August 5, 2019
In the UK, the FTSE 100 was down 167 points (2.2%) at 7,242.
A third plucky share – fashion firm Next PLC (LON:NXT) – has joined Fresnillo and IAG in positive territory. The retailer, which lifted profits guidance last week, was up 1% at 5,984p after Royal Bank of Canada raised its price target by 500p to 6,700p and reiterated its ‘outperform’ recommendation.
1.35pm: Blue-chips hit hardest by currency wars
Blue-chips were bearing the brunt of the damage as investors switched sharply into “risk-off” mode.
The FTSE 100 was down 157 points (2.1%) at 7.250 and while the mid-cap FTSE 250 was also sharply lower, it was only 1.7% (319 points) easier at 18,935.
FTSE 250 constituent Quilter PLC (LON:QLT), formerly known as Old Mutual Wealth Management Limited, was more or less achieving a par score with a 1.6% fall to 137.7p after it sold its insurance business to Swiss Re’s ReAssure arm for £425mln in cash.
Shareholders in easyHotel PLC (LON:EZH) woke up to pleasant news in the firm of a 95p a share offer for the company.
Shares in the franchised hotels operator rose by more than a third to 94.5p, taking the company’s market capitalisation over the £100mln mark.
Verona Pharma PLC (LON:VRP, NASDAQ:VRNA), the biopharmaceutical company focused on respiratory diseases, surged 13% to 48p following the announcement of positive Phase 2 data with a dry powder inhaler formulation of its lead development product, ensifentrine, for the maintenance treatment of chronic obstructive pulmonary disease.
Lead product #ensifentrine, for the maintenance treatment of #COPD, reports positive Phase 2 results with Dry Powder Inhaler Formulation. All of the primary and secondary lung function endpoints were met. https://t.co/L6mJDIJiwQ
— Verona Pharma (@VeronaPharma) August 5, 2019
12.20pm: US indices expected to fall off a cliff
The Footsie was bumbling along above its intra-day low ahead of what is expected to be a car crash opening on Wall Street.
The FTSE 100 was down 161 points (2.2%) at 7,246.
In the US, traders are bracing themselves for the Dow Jones to open some 374 points lower at 26,111. The broader-based S&P 500 is expected to shed 43 points to open at around 2,889.
“European equity markets have been rocked by the rising trade tensions between the US and China. The fact the Chinese central bank allowed the yuan to fall through the 7 mark against the US dollar without intervening is a clear indication that Beijing means business,” said David Madden, a market analyst at CMC Markets.
“The Chinese government has called on state buyers to stop purchasing US agricultural goods, and that is adding to the tensions between the two sides. There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time,” he added.
“Overnight, the Chinese services PMI reading slipped to 51.6 in July, from 52 in June, and the subdued reading highlights the cooling of the second-largest economy in the world,” Madden noted.
The Chinese PMI acted like a repellent on the shares of miners such as Anglo American PLC (LON:AAL), down 4.2% at 1,805p, and Antofagasta PLC (LON:ANTO), down 3.6%.
Banking giant HSBC PLC (LON:HSBA) unexpectedly parted ways with its chief executive officer, John Flint, and the market is not shedding a lot of tears.
The shares may be down 1.3% at 637.9p but the stock is actually outperforming the Footsie, helped by some decent first-half numbers.
“John Flint’s departure and a very cautious outlook statement are overshadowing what are a strong set of results in our opinion. Flint’s only been in the role 18 months, and while his strategy might not be revolutionary it’s certainly not been a disaster, it seems strange to be changing leadership again before reforms have had a chance to bed in,” opined Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“With the retail bank doing well when others are struggling, and the outlook for the investment bank set to improve, the change of leadership could be particularly confusing; however, we think the very cautious outlook statement might provide the explanation. With macroeconomic and geopolitical headwinds mounting, the HSBC board could be looking for more radical reform,” he added.
HSBC announces 4,000 job cuts
HSBC is set to slash 4,000 jobs, according to reports, after the lender announced the shock departure of its chief executive on Monday, warning of a “challenging global environment”.
John Flint has stepped down from the top job after just 18 months
— Engr M.Owais Qureshi (@iowaisqureshi) August 5, 2019
11.20am: Services PMI's slight revival weakens case for a rate cut
A market in need of good news got some in the form of a modest revival in the Markit/CIPS services Purchasing Managers Index (PMI) for July.
In the “bad news is good news” paradigm, however, the increase in the index to 51.4, from 50.2 in June and ahead of the consensus forecast of 50.3, will probably be interpreted as another reason for the Bank of England to park any ideas of an interest rate cut.
“The July purchasing managers survey pointed to the services sector seeing modest improvement to reach a nine-month high in July. This is welcome news after further contraction in both the manufacturing and construction sectors. Even so, services expansion was still limited in July and well below long-term norms,” observed Howard Archer, the chief economic advisor to the EY ITEM Club.
“Specifically, services business activity rose to 51.7 in July after dipping to a three-month low of 50.2 in June from 51.0 in May. It averaged just 50.5 over the second quarter, which had pointed to only slight expansion.
“July’s reading of 51.7 still indicated only modest expansion given that a level of 50.0 which indicates flat activity. It was substantially below the series’ lifetime (1996-2019) average of 54.9 and also clearly below the 2018 average of 53.0.
“Consumer services was reported to be the best performing sector, providing further evidence of how important the resilience of the consumer currently is to the economy. Meanwhile, business services was reported to have fallen in July and at the second-fastest rate in the past 10 years,” Archer reported.
Equity traders were largely oblivious to the PMI release, being more concerned with the rout on equity markets.
On the plus side, the Footsie’s plunge appears to have stopped, with the index down 136 points (1.8%) at 7,271, some 27 points above its low-point for the day.
The biggest faller was packaging giant DS Smith PLC (LON:SMDS), which was down 4.5% at 323p.
The company’s proposed takeover of Liqui-Box is in jeopardy after the Competition Markets Authority expressed concerns but Liqui-Box has given some undertakings to the watchdog that might be enough to enable the deal to go through.
10.00am: Spot the blue-chip in the blue
It’s Monday morning and another chance to play “spot the blue-chip in the blue” as all but two Footsie constituents hit the low road.
London’s index of leading shares was down 144 points (1.9%) at 7,263, which means “sell in May and go away” is looking like a smart strategy, unless the place you go away to requires foreign currency.
If you are looking for narrative on the recent $BTC move, look at what just happened to the Chinese Yuan. Absolutely getting crushed. Perhaps the Chinese are scooping up some Bitcoin as a store of value. It's a fun thought. pic.twitter.com/jXzOy30oGz
— The Wolf Of All Streets (@scottmelker) August 5, 2019
Precious metals miner Fresnillo PLC (LON:FRES) and British Airways owner International Consolidated Airlines (LON:IAG) are the only two blue-chips to make headway this morning on a day when “the trade war has in effect spread to a currency war”, according to Marshall Gittler at ACLS Global.
“There was an immediate “risk-off” reaction in the FX [foreign exchange] market, with JPY and CHF rallying, as did gold and silver,” Gittler commented, which explains why Fresnillo – up 3.2% at 630.4p – is doing well this morning.
IAG was 0.9% higher at 452.3p after JP Morgan said the stock was still its top pick in the sector after Friday’s update from the airline and news today that British Airways is to hold a new round of pay negotiations with its pilots. Sentiment was also lifted by the postponement of a proposed strike at London’s Heathrow airport.
JPM left its €8.35 price target unchanged.
In macroeconomic news, private new car registrations in July were down 2.0% on a year earlier, while total registrations, including fleet and business sales, were down by 4.1%.
“Car sales continued to trend down in July, though demand probably still is below normal levels due to the original March deadline for Brexit. Some buyers appear to have brought forward purchases to Q1 because some retailers warned that they would have to raise prices immediately in the event of a no-deal Brexit,” said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.
“Car sales also should recover over the coming months, given that real wages are rising briskly and consumers’ confidence in the outlook for their personal finances remained comfortably above its 35-year average in July, according to GfK. The cost of car finance also should begin to fall, given the recent decline in banks’ funding costs and corporate bond spreads,” he added.
“Admittedly, sterling’s 8% depreciation against the euro over the last three months will filter through to higher car prices eventually. But it took two years before car price inflation peaked following sterling's depreciation in 2016. Accordingly, we doubt the current period of falling car sales will last much longer, provided a no-deal Brexit is avoided,” Tombs revealed.
8.50am: Bears in the driving seat as Chinese currency plunges
The bears were very definitely in charge with the FTSE 100 tumbling 72 points to 7,334.63.
The blue-chip index followed Asia’s main markets lower with traders continuing to react to President Trump’s decision late last Thursday to pile tariffs on a further US$300bn of Chinese exports.
Beijing, meanwhile, allowed its currency to drop below seven yuan to the dollar for the first time in a decade, with markets taking this as a symbolic message of intent.
“This level has been protected for a long time by the Chinese who fear the consequences of rapid capital outflows and have spent large amounts of reserves to keep the currency just below,” explained Craig Erlam of OANDA Group.
“It seems they're now prepared to relax this policy after the US ramped up the trade war last week.
“This unintended consequence of the new tariffs will undoubtedly infuriate Trump who has accused China of currency manipulation in the past, even though this is effectively a case of them manipulating it less as market pressures grow.”
The completion of its deal with Marks & Spencer (LON:MKS) appeared to be a cue to sell for investors in Ocado (LON:OCDO), with one of the Footsie’s most overbought stocks marked down 4%.
The risers’ list was led by precious metals miner Fresnillo (LON:FRES) with a 2.5% gain. The value of its reserves of silver is determined by the gold price, which has spiked against the backdrop of market uncertainty. Centamin (LON:CEY) was also firmer.
6.25am: Another blood-letting session in store
After a three-figure decline on Friday, the FTSE 100 looks set for another blood-letting session.
With trade worries continuing to haunt international markets, the index of blue-chips has been called 90 points lower to 7,317.06.
Asia’s main bourses took a buffeting, with Nikkei down 2.4% and the Hang Seng dropping almost 3%.
It was fair to say the watching world (and not just China) was taken by surprise President Trump opted so quickly last week to escalate hostilities with tariffs on another US$300bn of exports from the People’s Republic.
Bullet in the chamber
“There had been an expectation [he] would keep this particular bullet in the chamber, holding it in reserve for later in the year, given the effect it might have on the US economy, which even now continues to outperform the rest of the world, though this could well change in the coming weeks as US consumers start to feel the chill winds of higher prices,” said Michael Hewson, analyst at CMC Markets.
“Now the chamber has been emptied, any escalations are likely to come in the form of higher tariff rates, and that’s before we consider the effect of the likely Chinese response, of which we could hear more details this week.
“As we head into a new week, and a disappointing start to August, the big question is whether last week’s sell-off is a one-off and a buying opportunity, or the start of a much bigger decline.
“Judging by the ferocity of the last two day’s sell-off and today’s further declines in Asia, there is a sense that it might be the latter which means we look set to see some further August angst for investors, starting with today’s session in Asia, which has seen further heavy falls and is set to see European markets open sharply lower this morning.”
Busy week for corporate news
Back here in the UK, we have another busy week for corporate news. HSBC (LON:HSBA) ties up the UK banking season while sticking with the financial services sector, Standard Life Aberdeen (LON:SLA) also has an update.
We’ll also learn whether the backwash from the Neil Woodford funds meltdown has hit one of his big supporters, Hargreaves Lansdown (LON:HL.), which unveils its finals on Thursday.
“Ultimately, we believe that HL will emerge relatively unscathed but undoubtedly this has knocked confidence in the short term,” said analysts at Peel Hunt.
The current week also sees bookie William Hill (LON:WMH) and hotelier Intercontinental (LON:IHG) providing more information of their respective financial performances.
Around the markets: Pound worth US$1.2151; gold worth US$1,463.80 an ounce, up US$6.30; Brent crude down 74 cents a barrel at US$61.15
Monday’s main corporate news
Interims: BBA Aviation PLC (LON:BBA), Dialight PLC (LON:DIA), Senior PLC (LON:SNR)
AGMs: Premier African Minerals PLC (LON:PREM)
Economic data: UK PMI services, US PMI composite, US ISM non-manufacturing index, Eurozone PMI composite
Business Headlines
Financial Times
- Renminbi falls past Rmb7 per dollar for first time in 11 years
- John Flint to step down as HSBC chief executive
- KPMG faces lawsuit threat over Carillion audit
- Barclays reins in bonuses in push to hit profit target
- Fiat Chrysler says door still open to Renault merger
Times
- Sterling deposits are cut as fears rise over no-deal Brexit - government builds up war chest to support pound
- Optimism about British exports falls before European Union exit
- Cobham founding family asks ministers to halt takeover
Daily Telegraph
- Arqiva owners explore plans to break-up the company two years after they abandoned a £6bn float
- City firms issue ‘etiquette’ guides after sexual harassment claims
- Ex-Goals boss and its former finance chief accused of fraud
Guardian
- Hargreaves Lansdown faces questions over Neil Woodford fund
- UK firms that export only to EU 'unprepared' for no-deal Brexit