London close: Stocks slip as US-China trade spat intensifies

London stocks retreated on Monday as Beijing and Washington exchanged threats of further tariffs in the wake of last week's largely unexpected stalemate in Sino-US trade talks, with defensive issues clearly in favour.

Just hours after the US President warned in a tweet that China should not retaliate against America's decision last Friday to raise its existing 10% tariff on $200bn-worth of Chinese exports to 25%, Beijing responded with its own levies of between 5% and 25% on thousands of US goods.

And the US was expected to unveil plans to extend its tariffs to the rest of China's exports later on Monday.

According to Michael Zezas at Morgan Stanley, the latest US tariff increase, with the 25% levy on $200bn of goods having been postponed at the end of 2018 as trade talks got underway, would prove to be "temporary", but "weaker markets may be required to encourage de-escalation."

At the close, the FTSE 100 was down 0.55% at 7.163.68, while the pound was off by 0.37% against the US dollar to 1.29533 and 0.41% weaker against the euro at 1.1529, while the FTSE 250 gave back 1.24% to stand at 19,126.88.

Nevertheless, shares in the FTSE 350 were spared the nearly three percentage point declines seen across Wall Street's main market gauges.

"Fears of another such move will be uppermost in most investors’ minds today. The current pullback will be a wonderful vindication of the ‘sell in May’ crowd, who will probably trumpet their prescience for the next six months, but investors can still point to the 20% gain from the December lows," chipped in Chris Beauchamp at IG.

"This pullback was inevitable, sooner or later, and the China news provides a convenient headline. Further weakness into June and July would be more concerning, and the market still looks like it is prone to further declines on trade-related headlines."

On home turf, there was growing concern over Prime Minister Theresa May’s ability to hold on to power as cross-party Brexit talks were close to collapse. Investors were also eyeing next week's European elections as opinion polls pointed to a near wipe-out for the Conservatives.

In equity markets, Vodafone was the worst performer throughout much of the session after an article in The Sunday Times suggested that the company was ready to slash its dividend to pay for 5G investment.

Commenting on that possibility, analysts at Berenberg told clients: "the much faster de-leveraging that a dividend cut brings might be the catalyst that attracts fresh money to the story [of the company's stable fundamentals]."

But the German broker stopped short of anticipating a cut.

Shares in Metro Bank slumped even as the challenger bank said its plans to raise £350m of equity capital were well advanced after it was forced to reassure customers their money was safe.

Metro announced the planned capital raising in February after lax accounting caused it to under-report the risk of millions of pounds of commercial property loans and loans to commercial buy-to-let operators. The error led to speculation about the bank's financial strength which it sought to quash at the weekend.

CMC Markets analyst Michael Hewson said: "Not surprisingly shareholders are furious having already been tapped for £300m last summer and while the bank has announced this morning that the £350m capital raising is well advanced, they haven’t answered any of the questions around why the error happened in the first place.

"No-one has been held accountable despite the fact that the error was only spotted by the Bank of England, and not by the bank, or its own auditors.

"This clearly raises questions over the banks risk management procedures, as well as its corporate governance, something that investors are likely to raise later this month at the bank's AGM."

Diploma lost ground as it posted a 13% rise in first-half adjusted pre-tax profit but said there have been signs of a slowdown in the industrials seals market.

Victrex was lower after the polymer solutions provider reported a 13% drop in first-half revenue to £145.7m, while Intu Properties and Man Group were hit by downgrades at JPMorgan and Goldman Sachs, respectively.

On the upside, British Gas owner Centrica was the top riser as it maintained its full-year guidance on cash flow and net debt but said a "challenging" environment due to falling gas prices, tariff caps, warmer weather and nuclear outages had forced it to conduct a strategic review of its portfolio.

Oil giants Shell and BP gushed higher on the back of rising oil prices after Saudi Arabia said two of its oil tankers were attacked over the weekend near the Strait of Hormuz.

Shell was also boosted by an upgrade to 'buy' at HSBC, while Marks & Spencer dipped on the back of an upgrade to 'buy' at Citi.

Market Movers

FTSE 100 (UKX) 7,163.68 -0.55%
FTSE 250 (MCX) 19,126.88 -1.24%
techMARK (TASX) 3,479.95 -1.29%

FTSE 100 - Risers

Centrica (CNA) 95.32p 2.94%
National Grid (NG.) 849.60p 1.69%
Compass Group (CPG) 1,730.50p 1.38%
Informa (INF) 758.40p 1.12%
Severn Trent (SVT) 1,982.50p 1.07%
Royal Dutch Shell 'B' (RDSB) 2,458.00p 1.03%
International Consolidated Airlines Group SA (CDI) (IAG) 503.40p 0.96%
British American Tobacco (BATS) 2,865.00p 0.92%
Unilever (ULVR) 4,649.50p 0.87%
Royal Dutch Shell 'A' (RDSA) 2,447.50p 0.87%

FTSE 100 - Fallers

ITV (ITV) 111.80p -6.33%
TUI AG Reg Shs (DI) (TUI) 781.00p -5.65%
Vodafone Group (VOD) 131.78p -5.19%
Evraz (EVR) 556.40p -5.12%
Antofagasta (ANTO) 803.20p -3.88%
NMC Health (NMC) 2,550.00p -3.34%
Glencore (GLEN) 271.60p -3.29%
Smurfit Kappa Group (SKG) 2,166.00p -3.13%
Johnson Matthey (JMAT) 3,063.00p -3.04%
Royal Bank of Scotland Group (RBS) 225.91p -3.00%

FTSE 250 - Risers

Funding Circle Holdings (FCH) 253.00p 3.05%
Hilton Food Group (HFG) 1,040.00p 2.36%
IntegraFin Holding (IHP) 392.00p 1.61%
Syncona Limited NPV (SYNC) 258.00p 1.57%
Pennon Group (PNN) 734.00p 1.47%
Ascential (ASCL) 354.00p 1.37%
Vivo Energy (VVO) 124.80p 1.30%
SSP Group (SSPG) 691.00p 1.02%
PZ Cussons (PZC) 195.60p 0.82%
Plus500 Ltd (DI) (PLUS) 561.00p 0.79%

FTSE 250 - Fallers

Sirius Minerals (SXX) 17.16p -10.81%
Stobart Group Ltd. (STOB) 126.00p -10.64%
Metro Bank (MTRO) 479.01p -10.21%
Victrex plc (VCT) 2,060.00p -7.21%
Cineworld Group (CINE) 294.70p -5.94%
AJ Bell (AJB) 445.00p -5.92%
Rotork (ROR) 279.80p -5.92%
Man Group (EMG) 144.00p -5.11%
Kaz Minerals (KAZ) 549.00p -5.05%
Ted Baker (TED) 1,488.00p -4.86%