London midday: Footsie falls despite crude oil surge
London stocks edged lower as Monday wore on, as miners slipped on China's withdrawal from trade talks, but oil prices hit a four-year high and Sky surged after Comcast outbid Fox for the broadcaster.
Not long after midday, the FTSE 100 was down 0.2% to just over 7,473, while the pound was up 0.5% versus the dollar at 1.3142 and up 0.3% against the euro at 1.1166.
Traders were looking east after China cancelled the latest round of US trade talks, bolstering trade war concerns, just as new US tariffs were due to begin. Beijing declined an invitation to explore further trade talks and summoned Washington’s ambassador to Beijing to protest over Russia-related sanctions imposed on a Chinese general.
Market analyst Rebecca O’Keeffe at Interactive Investor said: "During the first stages of the US-China trade war, markets concluded that the US President clearly held the upper hand and US markets reached new highs. However, as a new round of tariffs are imposed, the market is far less sure that this is a smart thing for the President to be doing. Not only has China retaliated immediately, but many of the new US tariffs are likely to have a direct negative impact on US companies and consumers.
"Last week, US chipmaker Micron warned of the negative effects of new tariffs on its business outlook, while consumer companies including Walmart and Target warned that US shoppers would have to pay higher prices as a result of the new tariffs. Support for tariffs in the US works as long as it doesn’t have a direct impact on US consumers, jobs or share prices. If this latest move starts to result in higher prices for customers or lower corporate profitability, the President may find the going much tougher, even with his most ardent fans."
On the UK data front, a monthly survey from the CBI showed manufacturing orders have fallen to a four-month low amid a decline in exports.
The industrial trends survey revealed a fall in the manufacturers orders balance to -1 for the three months to September, from +7 a month earlier. Economists had forecast a balance of +4.
Export orders weakened to a level not seen since last October, down to +5 from +9 in the past three reports. This was backed up by a parallel report released by BDO revealing UK export growth was the worst performing of the largest five EU economies in the last quarter.
Economist Sam Tombs at Pantheon Macroeconomics said growth in total orders is weakening from a high rate but the official manufacturing data has been much weaker than independent surveys this year, with output falling by 0.1% quarter-on-quarter in the first quarter and by a further 0.9% in the second.
"In addition, growth in export orders usually lags movements in sterling by about one year; the exchange rate’s relative stability over the last year, therefore, has started to take the edge off growth in exports."
Based on past form, Tombs said the export orders balance will fall to around -5 by the end of this year. "Meanwhile, the chance that overseas customers re-jig their supply chains increases with every day that passes without a Brexit deal. As a result, we doubt that the manufacturing sector’s recovery is about to get back on track."
Looking at individual stocks, meanwhile, the oil sector was boosted as crude oil prices rallied to highs last seen in late 2014, with a barrel of front-month Brent up more than 2% to as high as $80.94 at one point. Shell and BP were both on the Footsie leaderboard, while crude's rise lifted Tullow despite the company having plugged and abandoned its Cormorant-1 exploration well offshore Namibia after finding "non-commercial hydrocarbons".
Elsewhere, travel stocks were hit as Thomas Cook warned over its full-year profits as it said unseasonably hot weather hit bookings. This sent larger rival TUI sinking lower too, while On The Beach, IAG, Ryanair, easyJet and Carnival were also sent into the red.
Drax slipped after confirming that it is in talks with Spain’s Iberdrola about the potential acquisition of a UK portfolio of pumped storage, renewable hydro and gas-fired generation assets.
AstraZeneca ticked a little lower even as it said that its diabetes drug Farxiga met a key goal in a major clinical study to show the medicine’s heart-protecting benefits.
Tech stocks such as Micro Focus, Just Eat and Sage were lower, in sync with the falls seen at the end of last week for Wall Street's tech-heavy Nasdaq.
On the upside, Sky surged nearly 9% as it urged its shareholders to accept a takeover offer from US-based Comcast after it outbid Rupert Murdoch’s 21st Century Fox for the London-listed broadcaster. Sky said the Comcast offer of £17.28 represents an "excellent outcome" for its shareholders, at a premium of 125% to the closing price 6 December 2016, which was the last business day before Fox’s initial approach.
O’Keeffe said the premium offered for Sky by Comcast was indicative of how much pressure is on traditional media platforms from the likes of Netflix. "Their newer tech savvy rivals have revolutionised the way people engage with TV and internet content and these technology giants are investing huge amounts of money into both popular shows and new content to keep customers coming back for more."
Randgold Resources rallied as it agreed to a merger with larger Canadian rival Barrick Gold to create the largest gold miner in the world. London-listed Acacia Mining, which is 64%-owned by Barrick, was up on the news.
South West Water owner Pennon was a touch higher as it maintained its full-year expectations. Its Viridor waste business reported some improvement in recyclate pricing since the end of last financial year, in particular for paper.
SSE was lifted as a major gas discovery was announced at the Glendronach site among the West Shetland islands, where the energy company owns a 20% stake.
In broker note action, Smiths was downgraded to ‘neutral’ at Bank of America Merrill Lynch, while SSP was a new ‘hold’ for Jefferies. Spire Healthcare was resumed at ‘hold’ by Peel Hunt and Johnson Matthey was started at ‘outperform’ by Bernstein.
Capital & Counties was lifted to ‘outperform’ from ‘neutral’ by Credit Suisse.
Market Movers
FTSE 100 (UKX) 7,481.15 -0.12%
FTSE 250 (MCX) 20,574.09 -0.08%
techMARK (TASX) 3,496.63 -0.39%
FTSE 100 - Risers
Sky (SKY) 1,723.00p 8.71%
Randgold Resources Ltd. (RRS) 5,176.00p 5.14%
GVC Holdings (GVC) 986.00p 1.91%
Ocado Group (OCDO) 918.20p 1.57%
Sainsbury (J) (SBRY) 318.25p 1.29%
Fresnillo (FRES) 864.00p 1.22%
Royal Dutch Shell 'A' (RDSA) 2,598.00p 1.15%
Tesco (TSCO) 239.39p 1.10%
BP (BP.) 572.10p 0.90%
SSE (SSE) 1,138.50p 0.84%
FTSE 100 - Fallers
TUI AG Reg Shs (DI) (TUI) 1,392.50p -2.21%
Melrose Industries (MRO) 216.35p -1.88%
Sage Group (SGE) 572.60p -1.75%
British American Tobacco (BATS) 3,555.75p -1.69%
Reckitt Benckiser Group (RB.) 6,839.00p -1.68%
Intertek Group (ITRK) 4,872.00p -1.60%
Micro Focus International (MCRO) 1,340.50p -1.58%
Just Eat (JE.) 663.40p -1.57%
Antofagasta (ANTO) 882.40p -1.50%
National Grid (NG.) 776.00p -1.44%
FTSE 250 - Risers
Just Group (JUST) 86.00p 7.30%
Premier Oil (PMO) 129.20p 3.61%
Hochschild Mining (HOC) 168.43p 3.49%
Tullow Oil (TLW) 254.87p 3.27%
Cairn Energy (CNE) 228.00p 3.17%
Wood Group (John) (WG.) 765.60p 2.99%
Equiniti Group (EQN) 264.00p 2.72%
Syncona Limited NPV (SYNC) 283.91p 2.12%
IWG (IWG) 249.60p 2.00%
Inmarsat (ISAT) 505.60p 1.79%
FTSE 250 - Fallers
Thomas Cook Group (TCG) 62.68p -19.48%
Bank of Georgia Group (BGEO) 1,802.40p -4.07%
On The Beach Group (OTB) 493.50p -3.05%
Card Factory (CARD) 187.10p -3.01%
Contour Global (GLO) 209.40p -2.88%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 110.00p -2.65%
Capita (CPI) 143.56p -2.17%
Sanne Group (SNN) 643.00p -2.13%
Computacenter (CCC) 1,322.00p -2.07%
Dunelm Group (DNLM) 546.50p -2.06%