London midday: Stocks drop after China tells US to stop "bullying"
August has gotten off to a distinctly weak start with shares getting pummelled in the wake of fresh trade threats from the US administration against Beijing which drew an angry response from officials on the other side of the Pacific.
Overnight, and citing three persons familiar with the deliberations taking place on the Potomac, Bloomberg reported that Donald Trump was pushing for the US to levy tariffs of 25% on an additional $200bn-worth of goods from the Asian giant, instead of the 10% tax previously proposed.
The aim was to secure "certain concessions" but China retorted by warning against "blackmailing and pressures".
Also weighing on sentiment were weaker-than-expected readings on key surveys of Chinese and UK manufacturing sector conditions.
Against that backdrop, as of 1200 BST the FTSE 100 was down by 1.05% or 81.10 points at 7,667.39, alongside a retreat of 0.36% or 74.92 points for the FTSE 250 to 20,789.28.
To take note of, according to analysts, historically at least August was a notoriously haphazard month for shares.
In parallel, equity futures were pointing to a roughly flat start for the S&P 500 and a small gain on the Nasdaq-100.
Nevertheless, it wasn't all bad news on Wednesday.
Reporting ahead of Therese May's meeting with French President Emmanuele Macron, on Friday, the Financial Times said Brussels was now willing to 'fudge' the Brexit negotiations in order to help Prime Minister Theresa May avoid a 'no-deal' outcome and to obtain approval in Parliament.
Significant too, in after-hours trading in New York on Tuesday, traders pushed Apple shares 4% higher, with analysts at UBS pointing out that new product roll-outs are on the horizon and that investors might be undervaluing the company's services unit.
The manufacturer of the iconic iPhone reported better-than-expected quarterly results and soundly beat analysts' prediction for an average selling price for its iPhones of $693, flogging them at $724 per unit instead.
Back in UK news, IHS Markit's UK factory sector Purchasing Managers' Index printed at 54.0 for July, down from a reading of 54.3 in June and below the 54.2 that economists had penciled-in.
But no, said Barclays Research, that was not enough to keep the Monetary Policy Committee from raising rates when it met on Thursday.
Also out on Wednesday, Nationwide reported that house price gains accelerated from a 2.0% clip for June to a 2.5% pace in July (consensus: 1.8%).
That came alongside news from BRC-Nielsen that shop price deflation in Britain eased last month to -0.3% from -0.5% in June, as food prices rose more quickly.
The focus was now expected to shift to consultancy ADP's monthly private sector payrolls report in the States, at 1215 BST, followed by the ISM manufacturing sector survey, also in the US, at 1500 BST.
Later in the evening the US Federal Reserve's policy announcement was scheduled for 1900 BST, although no changes in policy were anticipated given that no press conference was scheduled for after the release of the policy statement.
In the words of analysts at Bank of America-Merrill Lynch: "The August FOMC meeting is likely to be a non-event for the rates market as well, with virtually no chance of an August rate increase but close to a 95% likelihood of a 25bp hike in September."
Paul Donovan at UBS was in a similar frame of mind, telling clients: "The US Federal Reserve is next in the list of major central banks offering policy pronouncements. The Fed's policy is painfully transparent to the point of being boring. The Fed says what it will do, slowly and clearly, and then does it. This is not the meeting to raise rates. The comments on the longer term outlook offer the only hope of excitement."
Capita flops, Rio slides
Capita reported a collapse in profits for the first half of the year but the outsourcer's new boss assured that his plan to simplify the business was making progress. Underlying profit before tax plunged 59% to £80.5m in the six months to 30 June on revenue that fell 5% to £2.0bn at the reported level or 4% to £1.98bn at the underlying level, which excludes discontinued operations.
Hedge fund Man Group on the other hand reported a 4.2% jump in first half assets under management to $113.7bn (£86.68bn) despite a strong dollar and lower performance fee income. Net inflows were flat at $8.3bn. Adjusted pre-tax profits were up 5% to $153m.
Anglo-Australian mining giant Rio Tinto said first half profits rose 12% as it announced a massive $7.2bn (£5.49bn) in shareholder returns from buybacks and asset sales. Underlying profit for the first six months was $4.42bn as the the interim dividend was lifted by 15% to $1.27 a share.
Smurfit Kappa’s first-half profit jumped by almost half after the corrugated packaging company fought off an attempted takeover by International Paper of the US. Operating profit before exceptional items for the six months to the end of June rose 48% to €529m (£471m) as revenue rose 5% to €4.4bn. Pre-tax profit rose 70% to €416m while earnings before interest, tax and other items increased 27% to €724m.
Trading at Next slowed more than expected in the second quarter as the high street clothing group's online and overseas sales was not enough to totally offset the persistent decline from its stores. For the 26 weeks to 28 July, full price sales rose 4.5% with online sales growing 15.5% and retail sales down 5.3%. Full year guidance was maintained.
Lloyds Banking Group’s first half profit jumped 23% as the bill for payment protection insurance and other compensation costs almost halved. Pre-tax profit for the six months to the end of June rose to £3.1bn from £2.5bn a year earlier as income rose 2% to £9.5bn. The cost of PPI and other remediation programmes fell to £807m from £1.59bn.
Direct Line saw gross written premiums slip 5% in the first half, it said on Tuesday, to £1.61bn, while direct own brand premiums grew 3.3%, driven primarily by continued growth in motor. The FTSE 100 company said that, normalised for weather, operating profit was up slightly, with the first half also including £49m of benefit from revised Ogden reserve releases. It said a headline decline in operating profit of £56.6m over last year was driven by higher weather-related claims.
AG Barr reported a 5% increase in first-half revenue as the maker of Irn-Bru and other soft drinks shook off extreme wintry conditions to benefit from a hot early summer. The Glasgow-based company said revenue in the six months to the end of June rose to about £136m from £129.8m a year earlier. It left its annual profit guidance unchanged.
Temporary power supplier Aggreko said first half pre-tax profits fell 7% to £59m, with revenues up 10% to £857m.
Market Movers
FTSE 100 (UKX) 7,637.38 -1.44%
FTSE 250 (MCX) 20,730.07 -0.71%
techMARK (TASX) 3,562.04 -0.71%
FTSE 100 - Risers
Smurfit Kappa Group (SKG) 3,190.00p 1.92%
Lloyds Banking Group (LLOY) 63.42p 1.67%
Shire Plc (SHP) 4,408.50p 1.32%
Smith (DS) (SMDS) 510.40p 1.27%
Schroders (SDR) 3,133.00p 0.64%
Croda International (CRDA) 5,172.00p 0.62%
Mondi (MNDI) 2,105.00p 0.38%
GVC Holdings (GVC) 1,173.00p 0.26%
Hargreaves Lansdown (HL.) 2,081.00p 0.24%
Diageo (DGE) 2,792.50p -0.34%
FTSE 100 - Fallers
Next (NXT) 5,480.00p -7.68%
St James's Place (STJ) 1,144.00p -5.10%
Rio Tinto (RIO) 4,004.50p -4.58%
Micro Focus International (MCRO) 1,205.50p -3.56%
Just Eat (JE.) 765.00p -3.53%
Direct Line Insurance Group (DLG) 332.40p -3.34%
Rentokil Initial (RTO) 328.20p -3.27%
Glencore (GLEN) 323.65p -3.24%
BHP Billiton (BLT) 1,699.20p -3.16%
Centrica (CNA) 144.15p -3.09%
FTSE 250 - Risers
Aggreko (AGK) 817.60p 10.01%
Man Group (EMG) 183.75p 5.91%
Provident Financial (PFG) 690.40p 3.04%
Sirius Minerals (SXX) 37.26p 2.42%
Ted Baker (TED) 2,254.00p 2.18%
Clarkson (CKN) 2,604.20p 2.13%
IG Group Holdings (IGG) 937.80p 1.88%
Virgin Money Holdings (UK) (VM.) 403.80p 1.84%
Lancashire Holdings Limited (LRE) 582.00p 1.57%
Greencore Group (GNC) 179.93p 1.49%
FTSE 250 - Fallers
BBA Aviation (BBA) 301.80p -13.77%
Capita (CPI) 150.00p -7.41%
Thomas Cook Group (TCG) 91.00p -5.11%
Kaz Minerals (KAZ) 810.00p -4.30%
Premier Oil (PMO) 123.50p -3.52%
Travis Perkins (TPK) 1,155.92p -3.35%
Intu Properties (INTU) 168.95p -3.24%
Drax Group (DRX) 352.40p -3.13%
Games Workshop Group (GAW) 2,901.20p -3.13%
Centamin (DI) (CEY) 115.45p -2.98%