London close: FTSE falls to four month-low

London's blue chip stocks on Wednesday fell to their lowest finish since April as the pound sharply reversed earlier softness, oil prices weighed and UK business optimism remained low amid trade and geopolitical tensions.

The FTSE 100 ended down almost 75 points or 1.0% to 7,383.28, the lowest closing level since 25 April. The benchmark's late descent was hastened as the pound jumped to a 0.8% gain versus the dollar at around 1.3 before giving up some of its gains. Sterling ended the European session roughly flat on the euro at 1.1064.

Lifting the British currency were reports that the German government had ditched key Brexit demands, with Bloomberg citing people familiar with the matter as saying that Germany is prepared to accept a less detailed agreement on the UK's future economic and trade ties with the EU in order to get a deal done.

Analyst Neil Wilson at Markets.com said the report indicates that both sides are prepared to forego ironing out some details on the future relationship for now.

He cautioned that Germany does not actually speak for the EU position and that these kinds of reports had lifted the pound before and "should be treated with caution". "But, it nevertheless it does still point to a degree of softening in the general tone of talks and that a deal is more likely than not."

Trade concerns were being cited by traders and analysts as a broader concern for global stock markets, sending Asian, European and US markets in the red.

“Emerging markets have been particularly weak and a lack of progress regarding international trade talks continues to unsettle investors,” said Russ Mould, investment director at AJ Bell.

As the US held trade talks with Canada over NAFTA, Oanda analyst Craig Erlam said: "Trump has threatened to tear up the agreement and replace it with a bilateral deal with Mexico if Canada doesn’t agree to the concessions that the US is demanding, which would likely be damaging for both countries should Congress support the decision, but prove to everyone else that he isn’t bluffing. That obviously isn’t the desirable outcome but as long as others believe it’s on the table, he may well draw at least some of the concessions he’s looking for."

This week could also see President Trump confirm the threatened 25% tariffs on another $200bn of Chinese imports over the next day or two, a move that has been criticised by many but seen by the White House as being necessary to address the trade deficit.

"Trump may have been aiming to get NAFTA over the line ahead of the mid-terms but I think he’s in this one for the long run and the Chinese don’t appear to be in any mood to back down, even if they aren’t able to respond with the same volume of tariffs," said Erlam.

Closer to home, UK services data revealed that activity in the sector picked up to its second-highest level since February last month thanks to improved business conditions, although the reading for business optimism hit one of its lowest level since the 2016 EU referendum.

IHS Markit's services sector purchasing managers' index rose to 54.3 in August from 53.5 in July, beating expectations for a reading of 53.9.

However, business expectations for the year ahead slumped, down across all three sectors, largely on the back of increased concern over Brexit negotiations.

"Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside," said Chris Williamson, chief business economist at IHS Markit.

In corporate moves, a slide in crude prices hit oil titan BP and Shell, falling 1.2% and 1.3% respectively as a big weight on the Footsie index.

Other resources heavyweights were mostly a negative presence after earlier China services data disappointed.

BHP Billiton also edged lower as it agreed to buy Guyana Goldfields' 6.1% interest in SolGold, the majority owner and operator of the Cascabel porphyry copper-gold project in Ecuador, for 26.592p a share.

Housebuilders bucked the trend, with Barratt Developments up after saying it aims to build 3-5% more houses over the coming years at higher margins and posting a 9.2% jump in full-year pre-tax profit to £835.5m. Peers Taylor Wimpey and Persimmon were carried higher.

Berkeley also was on the front foot as it said pricing has remained robust in the first four months of the year even if the housing market "lacks urgency", with London constrained by high transaction costs, restrictive income multiple limits on mortgage borrowing and economic uncertainty.

William Hill charged higher after agreeing to provide sports betting services in 11 US states under a newly extended partnership with casino group Eldorado Resorts, with sportsbooks to open in five casinos "within weeks".

Whitbread was lifted to 'neutral' by Bank of America Merrill Lynch following its agreement last week to sell the Costa coffee chain to Coca-Cola. Antofagasta was upgraded to 'equalweight' by Morgan Stanley, which upped BP to 'overweight' and initiated Wizz Air at 'equalweight'.

Vodafone was boosted to 'outperform' at Bernstein, while Peel Hunt downgraded Footasylum to 'sell' but upped Restaurant Group to 'reduce'.

Market Movers

FTSE 100 (UKX) 7,383.28 -1.00%
FTSE 250 (MCX) 20,388.47 -0.78%
techMARK (TASX) 3,462.67 -0.98%

FTSE 100 - Risers

Royal Mail (RMG) 468.10p 2.12%
Associated British Foods (ABF) 2,284.00p 1.83%
Barratt Developments (BDEV) 545.20p 1.79%
Royal Bank of Scotland Group (RBS) 250.40p 1.58%
Taylor Wimpey (TW.) 166.40p 1.28%
3i Group (III) 918.80p 1.08%
Berkeley Group Holdings (The) (BKG) 3,545.00p 1.00%
Persimmon (PSN) 2,375.00p 0.72%
Marks & Spencer Group (MKS) 300.10p 0.57%
Antofagasta (ANTO) 798.20p 0.48%

FTSE 100 - Fallers

WPP (WPP) 1,146.50p -4.18%
Burberry Group (BRBY) 2,116.00p -3.82%
Rightmove (RMV) 472.10p -3.65%
Coca-Cola HBC AG (CDI) (CCH) 2,562.00p -3.65%
NMC Health (NMC) 3,734.00p -3.61%
Rolls-Royce Holdings (RR.) 966.60p -3.34%
TUI AG Reg Shs (DI) (TUI) 1,363.50p -3.19%
Scottish Mortgage Inv Trust (SMT) 545.00p -2.77%
Ocado Group (OCDO) 1,041.50p -2.75%
Pearson (PSON) 897.80p -2.09%

FTSE 250 - Risers

Alfa Financial Software Holdings (ALFA) 157.80p 6.62%
Redrow (RDW) 572.50p 5.05%
William Hill (WMH) 260.50p 4.83%
Charter Court Financial Services Group (CCFS) 360.60p 3.98%
Card Factory (CARD) 191.08p 2.84%
Equiniti Group (EQN) 247.00p 2.49%
Go-Ahead Group (GOG) 1,651.00p 2.36%
BTG (BTG) 555.00p 2.30%
IWG (IWG) 242.70p 2.19%
Capita (CPI) 149.70p 2.01%

FTSE 250 - Fallers

Dechra Pharmaceuticals (DPH) 2,372.00p -6.02%
Premier Oil (PMO) 119.70p -5.90%
Sirius Minerals (SXX) 32.70p -5.44%
Hunting (HTG) 801.00p -5.04%
CLS Holdings (CLI) 219.00p -4.99%
Thomas Cook Group (TCG) 77.90p -4.94%
Energean Oil & Gas (ENOG) 530.00p -4.50%
Centamin (DI) (CEY) 93.08p -4.36%
Tullow Oil (TLW) 225.90p -4.04%
Genus (GNS) 2,722.00p -3.88%