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FTSE 100 closes lower as Wall Street plunges following Trump tweets on China trade

At the close, the UK blue chip index was 33.20 points lower at 7,094.98, the day’s low, having reversed from a session peak of 7,188.59

Federal Reserve
  • FTSE 100 sheds 33 points ahead of bank holiday weekend
  • Dow Jones plunges 400 points after Trump trade war tweets
  • Fed boss Jerome Powell to address Jackson Hole symposium later

5.00pm: Footsie reverse as Wall Street drops

The FTSE 100 index finished in the red on Friday, dropping back from a late afternoon rally as US stocks plunged following another round of volleys in the ongoing trade war between the US and China.

At the close, the UK blue chip index was down 33.20 points at 7,094.98, the day’s low, having reversed from a session peak of 7,188.59,  as traders took cover ahead of the long August Bank Holiday weekend in the UK.

On Wall Street, blue chips had started moderately lower, unsettled by news that China said it will impose new tariffs on the US, while awaiting a keynote speech later today by Federal Reserve chairman Jerome Powell at the US central bank’s symposium in Jackson Hole, Wyoming.

However, the Dow Jones Industrial Average had gone into a tail-spin by London’s close, shedding around 415 points, or 1.6% at 25,836, while the broader S&P 500 index lost 1.7% and the tech-laden Nasdaq Composite dropped 2.1% after President Trump weighed in on the trade war front again with a series of tweets.

Chris Beauchamp, chief market analyst at online trading giant IG, said: “It was all going swimmingly, until Trump decided to respond with a series of dramatic tweets regarding China. The tweets, ‘ordering’ US firms to seek alternatives to China, prompted a swift reversal in equities, which had been moving higher after a Powell speech that made all the right noises.”

He added: “Trade wars are certainly back, and this will no doubt push the Fed towards more accommodative policy. Both the Fed and China are in the president’s sights, which means that markets face a volatile few weeks, if not longer. Even a rate cut in September will likely be insufficient to appease the White House, meaning that investors should expect a volatile autumn.

Beauchamp noted: “A fresh record high has been seen in US utilities today, as the SPDR Utilities ETF climbs ever higher, continuing one of the most consistent rallies of the past decade. And with US bond yields going lower, along with global manufacturing PMIs, there seems to be more upside here.

“Perhaps there will eventually be talk of a bubble in utility stocks, an intriguing counterpart to the tech bubble of 20 years earlier.”

2.55pm: Nudges higher again

The Footsie has crept back into positive territory while US indices have, as expected, opened lower.

London’s index of leading shares was up 10 points at 7,138.

In the US, the Dow Jones was down 88 points (0.3%) at 26,165 while the S&P 500 was off 11 points (0.4%) at 2,912.

In London, Adept4 PLC (LON:AD4) was the star performer, soaring 83% to 2.65p after it announced plans to acquire Cloudcoco in what would be a reverse takeover.

Not far behind was recruitment firm Norman Broadbent PLC (LON:NBB) after cornerstone investor Garraway Capital Management sold off its stake.

The shares shot up 67% to 7.5p after a mixture of directors and existing shareholders mopped up the Garraway shares.

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2.00pm: Footsie's gains disappear

The FTSE 100’s gains have disappeared ahead of a US open that is expected to see US benchmarks lower.

The Footsie was unchanged at 7,129, despite sterling being a quarter of a cent lower at US$1.2228.

Across the pond, the Dow Jones was expected to open 113 points lower at around 26,139 while the S&P 500 was tipped to open 12 points weaker at 2,911.

12.40pm: The Footsie resumes its advance after a pause for breath

The FTSE 100 was back on the rise after a bit of a lull just before noon.

The index of leading shares was up 55 points (0.8%) at 7,183, just a few points below its high-point for the day.

“Stock markets are on the rise this morning as traders look ahead to Jerome Powell’s update at the Jackson Hole symposium at 3pm (UK time). Dealers are taking the view the head of the US central bank will deliver a dovish update, and pave the way for a rate cut next month,” suggested David Madden at CMC Markets.

“Mr Powell has come under fire from President Trump who has been demanding the Fed lower rates aggressively in a bid to soften the US dollar, and boost US exports, but Jerome Powell might stress the bank’s independence and choose to convey a neutral message. After all, the unemployment rate is low, inflation is firm, and retail sales are robust, so there is a strong argument for the Fed to hold fire in September,” Madden said.

Just nine stocks from the list of FTSE 100 constituents were in the red, including the two big oil giants, BP PLC (LON:BP.) and Royal Dutch Shell (LON:RDSB, down 0.3% and 0.1% respectively.

Brent crude was trading 13 cents lower at US$59.79 a barrel on the securities market.

“Oil appears to be waiting nervously for the Powell appearance, not sharing the optimism it seems that equity traders are showing. We've seen a rebound in recent weeks but it's far from convincing. If Powell triggers the recession warnings again today, oil prices could tumble and head back towards the summer lows as traders lose hope that the Fed has their backs. Who knows, maybe Powell is as obsessed with the yield curve inversion as the rest of us and will finally concede. I'm not optimistic though,” said Craig Erlam at Oanda.

Low-cost airline, easyJet PLC (LON:EZJ), was not complaining about the softer oil price; the shares were up 2.6% at 961.8p.

11.40am: Footsie in consolidation mode

After a bright first hour, leading shares have largely traded sideways as the countdown to the speech by Federal Reserve chairman Jerome Powell continues.

The FTSE 100 was up 53 points (0.7%) at 7,181.

“Powell may not have endeared himself to large numbers of people this year, none less than the President that promoted him, but everyone will be hanging on his every word today when he speaks at Jackson Hole,” said Craig Erlam at Oanda.

“Given what we've already heard and how Powell is effectively speaking on behalf of the entire committee, it's hard to imagine he'll be as dovish as markets are both demanding but also, it seems, expected. There seems to be a lot of optimism and I'm still unconvinced he'll deliver which begs the question, just how disappointed will markets be? I fear the recession sirens may be ringing out loud going into the weekend,” Erlam said.

One blue-chip not participating in the advance is retailer Marks and Spencer Group PLC (LON:MKS), which is down 1.1% at 189.6p, ahead of the forthcoming FTSE 100 reshuffle, due on Wednesday, 3 September.

“Marks and Spencer for so long has been a candidate for going down only to just escape at the last minute. The last time around it was saved by its well-timed rights issue, but alas, it can only hold out for so long and this time there seems little that can save it from going down bar a spectacular recovery in the share price,” suggested Helal Miah, an investment research analyst at The Share Centre.

“M&S for many generations has been a stalwart of the UK retail market and a founding member of the FTSE100, its relegation will be highly symbolic of the troubles on the UK high street and the challenges the UK retail sector faces as the internet plays an increasingly important role,” he added.

10.45am: Housebuilders to the fore as "affordablity gap" in British cities narrows

Aside from the prospect of another foreign investor swooping on a UK company to take advantage of sterling’s weakness, all is calm in London.

The FTSE 100 has recaptured most of yesterday’s losses, advancing 54 points, thanks in part to the strength of housebuilders following the latest Hometrack UK cities house price index report for July.

UK city house price inflation was 2.3% in the last 12 months.

“Affordability levels are slowly starting to improve in the highest value cities, but this looks set to be a drawn-out process. The potential for growth remains in the most affordable cities but increased uncertainty is weighing on market sentiment and headline price growth,” Hometrack said.

“Affordability in London is slowly improving from its recent peak. The price to earnings ratio is currently 13.1x, down from a high of 14.1x two years ago (June 2017). This takes affordability, on this measure, back to the level last seen 4 years ago, in mid-2015. Despite this modest improvement, the London ratio remains relatively high, well above the 20-year average (9.9x),” Hometrack added.

Handsome gains were won by the giants of the housebuilding sector, including Persimmon PLC (LON:PSN), Barratt Developments PLC (LON:BDEV) and Berkeley Group Holdings PLC (LON:BKG), all of which were up by more than 2%, as was property listings website operator Rightmove PLC (LON:RMV), up 2.3%.

The bid for Entertainment One, which seems to have been on the cards for years now, lit a fire under the share price of the terrestrial broadcaster, ITV PLC (LON:ITV), which once took a tilt itself at the Peppa Pig owner.

ITV shares topped the Footsie with a 5.1% increase to 120.45p as traders speculate it might be the next on the shopping list held by wealthy foreign currency owners.

“The foreign takeovers keep on coming. Film and TV producer-to-children’s merchandise group Entertainment One has been seen as a bid target for a long time although all the chatter has focused on a media company being the logical suitor. The fact that we’ve got toy company Hasbro attempting to buy the business may initially seem somewhat left-field yet this is a logical tie-up,” suggested Russ Mould, the investment director at AJ Bell.

Hasbro is the master of a milking a brand to sell all types of merchandise and so it is the perfect owner of Entertainment One which boasts an ever-increasing portfolio of popular children’s brands seen on the screen and on the shelves,” Mould added.

“The big question you should now be asking is whether someone else will make a bid for Entertainment now it is in play. The shares were trading at 571p at the market open versus Hasbro’s 560p bid, which implies the market is confident about a counter-bid,” Mould opined while suggesting Disney, Amazon and Netflix might have a gander at the company.

8.50am: London off to a confident start, pepped up by Peppa Pig bid

The FTSE 100 got off to a confident start, rising 47 points to 7,175.60.

The blue-chip index took its cue from Wall Street and Asia’s main markets overnight, which appeared to be anticipating positive news out of Jackson Hole, the Wyoming ski resort that is currently host to the world’s central bankers.

Hotly anticipated have been comments from US Federal Reserve chair Jerome Powell potentially pointing to the future direction of US interest rates.

Just why the markets should be so upbeat is something of a mystery among veteran watchers given Powell and his Fed team appear reluctant to cut borrowing costs at the speed anticipated by both the market and the American president.

“The Fed had been insisting that the July cut was a mid-cycle adjustment rather than the start of an easing cycle,” said Jasper Lawler of London Capital Group.

“US economic data has been mostly strong. The labour market is tight, retail sales increased by more than expected in the latest release, inflation is holding in there around the Fed’s 2% target and US company earnings are looking good.”

The betting, which suggests the US central bank will make another cut in September, may have been swayed by Thursday’s data, which suggested US manufacturing has slowed to a 10-year low. That said, America’s smokestack industries only generate around 12.5% of the country's income.

On the market, NMC Healthcare (LON:NMC) was well bid in the wake of interest by two separate would-be buyers in acquiring a stake in the Gulf-based hospitals group. The shares advanced 4.5%.

The big mover was Entertainment One (LON:ETO), which rose 30% after toy giant Hasbro agreed to buy the creator of Peppa Pig.

ITV (LON:ITV) advanced 3.3% in the wake of the deal with traders relieved the broadcaster won’t be making an expensive bid for E1.

6.30am: FTSE 100 set to claw back some ground 

The Footsie was expected to claw back some of yesterday’s losses at the outset, albeit hesitantly ahead of today’s speech by Federal Reserve chairman, Jerome Powell.

Spread betting quotes indicate that the FTSE 100 will open around 28 points higher at 7,156 after it shed 76 points yesterday to close at 7,128.

“Today's Jackson Hole speech highlights an important point in central banking – sometimes, it is best to say nothing...that's not what we are going to get though,” suggests Robert Carnell at ING Economics.

Carnell makes the point that the bosses of central banking organisations have the power to move markets with their pontification but that does not necessarily mean that their musings and predictions are right.

“The additional complication for today's speech is that Powell does not even necessarily represent the collective view of the FOMC committee,” he added, referring to the Federal Reserve’s policy-making committee.

“The last few days has delivered some very different views, with at least three, Esther George, Eric Rosengren and Patrick Harker Expressing a view that no more easing was necessary, at least not yet,” he noted.

As if to underline the point, confusion reigned in the US markets yesterday with the Dow Jones rising 50 points to close at 26,252 while the S&P 500 eased 1.5 points to around 2,923.

In Asia this morning, markets have mostly been on an upswing. Japan’s Nikkei 225 was 61 points to the good at 20,689 and the Hang Seng was 130 points firmer at 26,179.

Turning back to the UK and corporate news flow, there’s is not a lot coming down the turnpike.

Computacenter PLC (LON:CCC) will report first-half results, having revealed at the end of the first quarter that customers did not seem to be deterred by the “slightly more challenging economic conditions throughout our major markets”.

The FTSE-250 IT supplier also recently said that underlying adjusted profit before tax in the first half was “marginally ahead” of last year's £52mln and raised its outlook for the full year to a level “materially ahead of current market expectations”. 

This mainly reflected the fact that last year management took several provisions on mainly on German outsourcing contracts and it now feels the level of provisioning is adequate and so new provision creation will “reduce significantly” in the second half.

There are also interims scheduled for Kingspan Group PLC (LON:KGP), the specialist in insulation, facades and ‘building envelopes’.

For this FTSE SmallCap outfit, UBS analysts expect first-half sales growth of 14% to €2.3bn, driven by 5% like-for-like growth, 8% from acquisitions and some currency benefit. 

Trading profit is pencilled at €325mln, representing growth of 20% as margin expansion is driven by deflation in commodity prices. 

The analysts concluded, “we think guidance could imply some upside to consensus EBITA estimates of ~€480m (UBSE €500m), with upside likely from input costs. The downside risk is the evolution of end markets, in particular, the UK.”

Significant announcements expected on Friday:

Interims: Computacenter PLC (LON:CCC), Glenveagh PLC (LON:GLV), Kingspan Group Plc (LON:KGP), Afarak Group PLC (AFRK)

Economic data: US new home sales

Around the markets:

  • Sterling: US$1.2229, down 0.21 cents
  • 10-year gilt: yielding 0.52%, up 4.3 basis points
  • Gold: US$1,504.60 an ounce, down US$3.90
  • Brent crude: US$60.03 a barrel, up 11 cents
  • Bitcoin: US$10,172, down US$14

Proactive news headlines

88 Energy Ltd (LON:88E, ASX: 88E) has provided investors with a new breakdown of its conventional prospect inventory in Alaska, in the wake of yesterday’s news that it is farming-out a 60% in Project Icewine’s Area A.

Eco Atlantic Oil & Gas Ltd (LON:ECO, CVE:EOG) told investors that its next exploration well in Guyana will spud in the coming days.

Jersey Oil and Gas PLC (LON:JOG) has enjoyed a 100% success rate in the latest North Sea licensing round after acquiring Block 21/2a in the Greater Buchan Area.

Alternative fuels specialist Quadrise Fuels International PLC (LON:QUAD)  has unveiled plans to raise up to £3.5mln that will allow it to build on the “considerable” commercial momentum generated so far this year.

Union Jack Oil PLC (LON:UJO) has updated on the West Newton A-2 well after project operator Rathlin Energy communicated details to the local community.

BATM Advanced Communications Ltd (LON:BVC) will become a constituent of Tel-Aviv Stock Exchange indices TA-125, TA-90, TA-SME150, TA-Rimon, TA Global-BlueTech, TA-Technology, TA Tech - Elite and TA-AllShare on 5 September.

City headlines:

The Daily Telegraph

  • Peppa Pig-owner Entertainment One was snapped up for £3.3 billion on Thursday night by Hasbro, the American toy giant.
  • Germany is examining plans to prohibit banks from imposing negative interest rates on savers.
  • Dion Weisler, the boss of computer giant HP, is to step down after four years due to family health reasons.
  • Tesla’s top shareholder has said that Elon Musk is not irreplaceable as chief executive of the electric car company.

The Times

  • David Schwimmer, chief executive of the London Stock Exchange, has intensified his efforts to secure the flotation of Saudi Arabia’s giant state-owned oil company Aramco.

Financial Times

  • The use of facial recognition technology in the European Union is set to come under stricter rules.
  • Patrick Byrne, the controversial boss of the online retailer Overstock.com, has quit at chief executive officer after 20 years in the role.

The Independent

  • Morrisons revealed that it will close four stores, with 400 supermarket workers facing redundancy.
  • Business activity in the US has slowed to a snail’s pace as the dominant service sector hardly grew this month, while manufacturing shrank for the first time in a decade.
  • Jyske Bank has announced it will begin charging millionaires a fee to store their money in the Danish bank.
  • The UK has signed a free trade agreement with South Korea, which will protect annual trade flows between the two countries, which were worth £14.6 billion last year.

The Guardian

  • The CBI’s health check on the retail industry found
  • Investors in the TV property guru Kevin McCloud’s eco-friendly housing ventures face losing up to 97% of their money.
  • The gambling group Rank has drawn up an emergency “Brexit menu” for its Mecca Bingo and Grosvenor Casino chains to avoid relying on food and drink supplies coming through ports.
  • Laura Ashley suffered an annual loss of more than £14 million after a collapse in demand for its signature floral home furnishings.
  • Cuadrilla was forced to halt fracking at its shale gas site near Blackpool in Lancashire on Wednesday night after triggering the largest tremor recorded at the location.

Daily Express

  • Pound US dollar exchange rate surged as Boris Johnson meets with France’s Macron in Paris where the UK prime minister appeared to show unexpected flexibility over the Irish backstop issue.

Daily Mail

  • Mike Ashley's Sports Direct is in talks with a little-known auditor after Grant Thornton ditched the company last week following the shock revelation of a £605 million tax bill.
  • Democracy campaigners have accused HSBC and Standard Chartered of bending the knee to China's Communist leadership after the UK lenders published anti-protest adverts in Hong Kong newspapers.
  • De La Rue’s chief technology officer Selva Selvaratnam has departed, as the management exodus at the troubled banknote printer continued.
  • Daniel Hall, a senior executive at embattled Burford Capital, is alleged to have traded a sex tape related to American shipping magnate Harry Sargeant III for confidential documents.

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