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FTSE 100 closes firmly lower as global economic growth fears weigh

"China sent the markets spiralling once again as it said that it is planning to retaliate against the latest round of tariffs set to be imposed by the US," said Spreadex's Connor Campbell.

Stock chart
  • FTSE 100 closes in red

  • RBS biggest faller after broker downgrades and trading ex-dividend

  • But US stocks head north

FTSE 100 closed firmly lower on Thursday as there was a distinct dichotomy between markets on this and that side of the pond.

European indices dropped, while Wall Street shares headed north.

Britain's premier share index closed 80.87 points lower at 7,067.01 while the midcap FTSE 250 shed 90.40 points at 18,640.65.

On Wall Street, the Dow Jones Industrial Average added around 113 points to 25,593, while the broader based S&P 500 gained over 13 points to 2,853.73.

David Madden, market analyst at CMC Markets, said fears "for the health of the global economy" were weighing on the UK index.

"Energy and mining stocks have incurred heavy losses as the underling oil and metals markets are lower due to the fear that demand for the commodities will drop," he said.

"Banks are suffering too, but that isn’t a surprise given the compression in the UK government bond yields, and bank’s profitability is usually hit in lower interest rate environments."

Conversely, in the US today, data was positive. Retail sales jumped by 0.7%, which beat the 0.3% forecast, and improved on the 0.3% posted in June.

"The jobless claims rate ticked up to 2220,000 from 211,000, but the rate is still very low in the grand scheme of things. The Philly Fed business index cooled to 16.6 from 21.8, but topped the 10 forecast," said the analyst.

3.40pm: Footsie rally fizzles out

A late afternoon rally by the Footsie fizzled out, despite US indices moving into positive territory.

The FTSE 100 was down 82 points at 7,067.

Just 10 index constituents were on the up and many of those were the usual suspects from defensive sectors such as tobacco, booze and utilities.

Royal Bank of Scotland Group PLC (LON:RBS) was the worst performer, down 11% to 176.725p, largely as a result of going ex-dividend today, although downgradess from HSBC and Macquarie did not help sentiment.

HSBC cut its rating on RBS to 'hold' from 'buy' and lowered its target price to 210p from 260p after RBS recently reported weaker-than-expected second-quarter results.

Macquarie downgraded RBS to ‘neutral’ from ‘buy’ and reduced its target price to 201p from 246p, also pointing to the disappointing results.

3.00pm: US stocks open modestly lower

US indices have opened modestly lower, adding slightly to yesterday's massive losses following the inverse yield curve drama.

“The inversion of the 2-year yield curve with the 10-year yield curve provoked such a reaction because it is considered a clear signal for a recession. These yield curves inverted before each of the 7 previous recessions, including the Great Recession,” explained Fiona Cincotta at City Index.

“Whilst an inverted yield curve preceded each recession, every inverted yield curve does not lead to a recession. In the same breath, US – Sino trade tensions, Brexit, Italian politics and political unrest in Hong Kong are giving investors plenty to fret about,” she added.

Having perked up a little following the release of strong US retail sales figures, the Footsie has resumed its downwards hurtle, at 7,057, down 91 points (1.3%) on the day.

Struggling digital marketing specialist Mporium Group PLC (LON:MPM) tumbled 6.7% to 0.98p after it revealed it had issued 6.63mln new shares to Novum Securities in lieu of fees, taking the number of the company's shares in issue up to 1.04bn.

The company has also issued warrants over 15mln ordinary shares to Ridgeway Capital to pay for their business restructuring services; the warrants have an exercise price of 1.5p.

2.15pm: US retail sales provide some cause for optimism

London's leading shares have reduced their losses as investors drew encouragement from futures markets that are now suggesting US stocks will open higher.

The FTSE 100 was down 67 points (0.9%) at 7,081.

The turnaround in sentiment stateside has been occasioned by US retail sales, which, like their UK counterpart in July, were boosted by the Amazon Prime online shopping hustle.

July retail sales rose 0.7% in July, which was well above the consensus forecast of 0.3%. Sales excluding motor vehicles and fuel sales were up 0.9%.

Internet sales shot up 2.8%.

“Headline sales were constrained by a dip in the auto component, no big deal, while the core was propelled by Amazon’s two-day prime event, which lifted non-store sales by a huge 2.8%, even better than the 2.5% we had expected,” said Ian Shepherdson at Pantheon Macroeconomics.

“The consumer, in short, remains in very good shape, starting the third quarter on a very solid note. Gains at this pace can’t be sustained—control sales rose 9.9% annualised in the three months to July, compared to the previous three months, about double the pace of income growth—but we see zero evidence that the consumer is being dragged down by the troubles in manufacturing. As consumption accounts for nearly 70% of GDP [gross domestic product], this makes us comfortable expecting GDP growth to exceed 2% again in the third quarter,” Shepherdson said.

On the equities front in the UK, Thor Mining PLC (LON:THR) thundered 7.7% higher to 0.7p after it unveiled a “substantial” initial copper resource of 114,000 tonnes at its Moonta project in South Australia.

 

Elsewhere in the mining sector, and somewhat higher up the greasy pole, commodities trader Glencore PLC (LON:GLEN) was down 2.7% at 224.35p after being downgraded to 'underweight' by JP Morgan Cazenove.

The broker also slashed its price target from 330p to 260p.

12.25pm: Trap door opens beneath the Footsie

A trap door opened under the Footsie in mid-morning and now the index is wearing a triple-digit fall, mirroring the trajectory of US index futures.

After crashing 800 points yesterday to 25,479, the view a couple of hours back was that the Dow Jones would stabilise when trading starts this afternoon but spread betting quotes are now pointing to a fall of around 60 points.

Having put its finger up to the wind, the FTSE 100 headed south and in early lunchtime trading was down 105 points (1.5%) at 7,043.

Sterling's rally against the greenback has contributed to the general lack of enthusiasm for UK blue-chips; the pound was up by around half a cent at US$1.2105.

“European indices rolled over into the red to hit day lows as a series of news flashes indicated further worries about trade, with China saying the US has violated past agreements with the 10% tariffs and that Beijing will have to take countermeasures,” said Neil Wilson of markets.com.

“This does bode well and may encourage Trump to react – there is a chance he could bring forward all the tariffs to September 1st. Countermeasures suggests China is not interested in the delay to tariffs – and may have sniffed a weakness in the US position and is keen to exploit it. Retaliation by China means escalation in tensions, and diminishes the chances of a positive outcome in the near term. Risks are still to the downside,” he opined.

Sports betting group GVC Holdings PLC (LON:GVC) was wanted after it raised its full-year outlook.

The shares were up 3.1% at 563.8p.

“The highlight of GVC’s numbers is the better than expected results from the UK retail business, dominated by Ladbrokes and Coral,” suggested George Salmon, an equity analyst at Hargreaves Lansdown.

“The £2 maximum staking limit on fixed-odds betting terminals has hit profits, but a higher than expected number of punters are instead having a bet over the counter. The read-across is that only around 900 shops are expected to close, as opposed to initial expectations of more like 1,000,” he added.

10.45am: Defensive favourites in favour as Footsie fades

After a grin-and-bear-it start, the Footsie has shifted decisively into reverse, along with the rest of Europe’s major indices.

London’s index of leading shares was down 60 points (0.8%) at 7,088, with investors taking refuge in defensive standbys such as the fags companies and utilities.

Among the former, British American Tobacco PLC (LON:BATS) was up 1.8% at 3,062.5p while Imperial Brands PLC (LON:IMT) was 1.6% better at 2,122.75p.

Among the latter, United Utilities Group PLC (LON:UU.) was the pick of the bunch, up 0.7% at 779.4p, closely followed by British Gas owner Centrica Plc (LON:CNA), up 0.6% at 65.9p.

Retailers did not seem overly impressed by better-than-expected retail sales figures. DIY retailer Kingfisher PLC (LON:KGF) was down 2.6% at 193.75p, food and clothing seller Marks and Spencer Group PLC (LON:MKS) was down 0.6% at 181.875p and supermarket giant Tesco PLC (LON:TSCO) was off 0.6% at 213.05p.

“Retail sales saw only modest growth in the latest three months,” reported Rhian Murphy, the head of retail sales at the Office for National Statistics.

“Although still declining across the quarter, there was an increase in sales for department stores in July for the first time this year. Strong online sales growth on the month was driven by promotions,” she added.

The period covered by the retail sales data included the manufactured retail frenzy that is Amazon Prime Day but even so, the underlying trend is solid, according to Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

“July’s retail sales figures continue the trend of above-consensus numbers which demonstrate that consumers aren’t fazed by the Brexit deadline. Granted, Amazon's Prime Day, which the retailer has run every July since 2015, probably was chiefly responsible for the colossal 6.9% month-to-month rise in non-store sales, which made a 0.7 percentage point contribution to growth in total sales,” Tombs noted.

“Sales volumes likely will fall back in August, given that some shoppers probably brought forward planned purchases to take advantage of the temporary discounts offered by Amazon. Nonetheless, we still think that consumers can be relied upon to steady the ship,” he added.

Buses and trains operator FirstGroup PLC (LON:FGP) defied the trend, rising 5.3% to 120.7p after it appointed David Martin, the former chief executive of transport rival Arriva, as its new chairman.

Fellow FTSE 250 stock Kaz Minerals PLC (LON:KAZ) tumbled 8.6% to 452.4p as it chopped the interim dividend to 4 cents from 6 cents and gave a downbeat assessment of the short-term copper market outlook.

9.35am: Retail sales rise 3.3% year-on-year

UK retail sales were up 3.3% year-on-year in July, ahead of expectations of a 2.5% increase but down from the previous month’s rise of 3.8%.

Food retailing was the only main sector reporting a fall at 0.5%, the Office for National Statistics (ONS) said, while there was a glimmer of hope for the beleaguered department stores sector, as department stores sales rose 1.6% month-on-month – the first monthly increase this year.

The quantity bought in July 2019 increased by 0.2% when compared with the previous month, with strong growth of 6.9% in non-store retailing, the ONS reported.

The FTSE 100 was down 58 points (0.8%) at 7,090.

9.20am: Leading shares bearing up well after yesterday's US shake-out

The FTSE 100 was bearing up remarkably well ahead of the release of retail sales data.

London’s index of leading shares was down 19 points at 7,133 and that’s on a day when the likes of Ashtead PLC (LON:AHT), Imperial Brands PLC (LON:IMT), Reckitt Benckiser PLC (LON:RB.), London Stock Exchange Group PLC (LON:LSE), Royal Bank of Scotland Group PLC (LON:RBS), Pearson PLC (LON:PSON), Schroders PLC (LON:SDR), Segro PLC (LON:SGRO), and Mondi PLC (LON:MNDI) are trading ex-dividend.

The morning’s buzz-phrase is “yield curve inversion” after the yield on long-term government debt dipped below short-term yields, which historically is seen as a harbinger of recession.

“An inversion such as this generally tends to support a view that short term monetary conditions are too tight, and that these short rates need to be lower. That would be an eminently sensible viewpoint if interest rates were at normal levels. As we all know they clearly aren’t at normal levels so it’s difficult to argue that historical precedents apply. When interest rates are at record low levels and yield curves are so flat inversions tend to be a consequence of the flatness of the curve. As such cause doesn’t always lead to effect,” suggested Michael Hewson at CMC Markets.
 

8.40am: London keeps calm and carries on

The FTSE 100 opened 24 points lower at 7,123.89 – a resilient performance given the 800-point drop in the Dow and the turmoil across Asia’s main markets.

The collapse was prompted by a phenomenon known as the inverted yield curve. This is where the interest rates on short-term government debt is higher than the return on long-term bonds.

It signals that investors are so worried about the near-term prospects they are piling en masse into longer-term holdings, driving up the price of say 10-year, or 30-year government debt and, in the process, forcing down the yield.

An inversion of this type tends to shout recession. However, there are some in market following a very British mantra: keep calm and carry on.

“Apparently a trade war, economic slowdown and Brexit, among other things, are not reason to panic but the moment the 10-year yield drops below the two-year, all hell breaks loose,” said Craig Erlam, senior market analyst at OANDA.

“I'm in no way playing down the risk of recession, the data has been warning about the risks for some time and equity markets have been in denial as they've continued to scale new highs.

“It's often said that the bond market is a step ahead which is why the panic has set in but I do believe we read too much into trends at times at the 2 to 10-year fear certainly falls into this bracket.”

The sin stocks, usually a haven in tough times, were well bid. British American Tobacco (LON:BAT) and rival Imperial Brands (LON:IMB), were up 1.5% and 1.2% respectively.

Royal Bank of Scotland (LON:RBS) topped the fallers with an 8% decline after its started trading without an entitlement to a dividend.

6.30am: FTSE 100 set for positive start

London’s FTSE 100 is set to start the morning slight positively, despite a slew of negativity elsewhere in equity markets.

With just over an hour until the open, CFD firm IG Markets makes the FTSE 100 six points higher, at 7,106 to 7,109.

It is, relatively speaking, a bright spot.

CMC Markets analyst David Madden, in a note, highlighted a string of negative market news so far this week, with negative growth in Germany being the latest.

“Europe is already facing major problems as political uncertainty in Italy rumbles on, and the chatter of a no-deal Brexit is still doing the rounds,” Madden said.

He added: “Stocks in Asia fell overnight as sentiment remains sour. All is not well in the Far East as unrest in Hong Kong is hanging over the financial hub, and the latest retail sales, fixed asset investment and industrial production reports from China all added to the view that the economy is cooling.

“The slew of negative news has seen a huge shake down in global equity markets.”

In New York last night, Wall Street’s Dow Jones lost 800 points or 3.05% to 25,479 whilst the S&P 500 similarly dropped 2.93% to 2,840. The Nasdaq fell 3.02% to 7,773.

Japan’s Nikkei is down 265 points or 1.29% at 20,389 and Hong Kong’s Hang Seng is only 0.04% lower, at 25,292, whilst the Shanghai Composite Index is 0.4% lower at 2,797.

Around the markets

Pound: US$1.2055, down 0.04%

Gold: US$1,520, up 0.34%

Brent crude: US$59.15, down 3.6%

Bitcoin: US$9,758, down 7.7%

Proactive news headlines:

NQ Minerals PLC (NEX: NQMI) highlighted an improved performance through the second quarter as it released interim results for the first six months of its financial year.

Thor Mining PLC (LON:THR) has unveiled what it said is a “substantial” initial copper resource of 114,000 tonnes at its Moonta project in South Australia.

Tekcapital PLC’s (LON:TEK) Lucyd portfolio company has launched its Sherman Shades – the highly-anticipated range of sunglasses co-designed by NFL star Richard Sherman.

Tissue Regenix Group PLC (LON:TRX) has secured additional manufacturing space next to its facility at San Antonio, Texas, which will allow it expand capacity.

The recovery at Westminster Group PLC (LON:WSG) continued in the first half of 2019 with sharply reduced losses on revenue that more than doubled.

Scotgold Resources Limited (LON:SGZ) has appointed Ian Proctor, the chief executive officer of Sky Betting and Gaming, as a non-executive director.

Kibo Energy PLC (LON:KIBO) told investors it has been granted seven new mining rights relating to the Mbeya Coal to Power Project (MCPP) in Tanzania.

Base Resources Limited (LON:BSE) said UBS has decreased its interest in the company by a 5.96% stake.

APQ Global Ltd (LON:APQ) said its unaudited book value per ordinary share was 90.33 US dollar cents at the close of business on 31 July, the, equivalent to 73.77p.

Woodbois Ltd (LON:WBI) said it has been placed seventh out of 97 companies on the Sustainability Policy Transparency Toolkit timber producers table, as one of only nine other companies which were ranked in the 'higher' segment of the transparency score range this year.

Business news headlines

Germany steels itself to face recession threat – BBC News

Dow plunges 800 points and Asian stocks fall as recession fears grow – Guardian

Surge in electric car sales could crash the National Grid by 2040 – Daily Mail

Insurer Prudential to split by end of the year – Financial Times

Fears of sprout shortage at Christmas as 'unprecedented' heavy rain hits UK crops – Sky News

Cauliflower shortages as extreme weather kills crops – BBC News

Bill Ackman buys stake in Buffett’s Berkshire Hathaway – Financial Times

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