London close: Stocks stumble on trade worries, recover as Brexit hits pound

London stocks steadily pared losses over the course of Tuesday's session, helped as the pound fell on Brexit worries but escalating trade tensions between the US and China and a series of profit warnings kept investors on edge.

The FTSE 100 finished down 0.4% to 7,603.85, well up from earlier levels as sterling lurched lower against the greenback, with the currency down 0.6% at $1.3171 and trading below 1.3180 for the first time in seven months. A weaker pound tends to benefit the top-flight index as around 70% of its constituents derive most of their earnings from abroad.

Sterling was weakened after Prime Minister Theresa May lost a vote on her Brexit legislation in the House of Lords and on reports that officials are not hopeful of agreeing a deal with the European Union any time soon.

The Brexit bill will go back to the Commons for a vote on Wednesday. The government “cannot accept” a Lords amendment giving parliament a “meaningful vote” on a Brexit deal, Downing Street said.

Analyst Jasper Lawler from London Capital Group said: "This will not only test May’s ability to steer a minority government, but also the pounds buoyancy as pro-EU rebels promise they can collapse the government if their demands aren’t met. Theresa May showing signs of weakness and an inability to control her party wouldn’t bode well for the future as several other piece of legislation is still needed in order to prepare for Brexit."

On the other side of the coin, the dollar was stronger from a combination of safe haven Treasury demand, analysts said, which has driven the 10-year yield back below 2.9% and weakness in the euro and the pound.

Trade tensions were also in focus after US President Donald Trump instructed his country's trade representative to identify a new $200bn-worth of goods on which to levy 10% tariffs. He also called for a separate list to be prepared detailing a further $200bn-worth of Chinese goods that could be targeted if Beijing responded with countermeasures of its own.

The moves overnight followed Beijing's decision to retaliate for the duties on $50bn worth of Chinese goods that Washington had announced last week.

China's Ministry of Commerce responded immediately on Tuesday morning, describing the move as "extreme pressure and blackmail".

Trump said in his statement that by retaliating with its own tariffs rather than altering its practices, China was "threatening US companies, workers, and farmers who have done nothing wrong".

IG analyst Joshua Mahony said: "Clearly with the July 6 deadline approaching, markets had hoped we would be moving towards a solution rather than simply raising the stakes. There is little sign that Trump is about to give up, with Chinese negotiations clearly sending out a message to the EU, setting a precedent to their discussions."

In UK corporate news, profit warnings were the order of the day, with retirement housebuilder McCarthy & Stone and retailer Debenhams both in the frame. Shares in McCarthy tanked after it issued a profit warning amid increased caution from potential customers and announced the early retirement of its chief executive. An anticipated strong spring selling season failed to materialise and the FTSE 250 company said it now forecast flat or lower sales completions for the financial year ending 31 August, meaning profits could fall between 17% and 32% to an expected operating profit range of £65-80m.

Debenhams was also sharply lower as it warned that annual profit will be at least 20% less than market expectations as the department store chain faces weak consumer spending and discounting by competitors. Pre-tax profit for the current financial year will be in the range of £35-£40m compared with analysts’ average forecast of £50.3m, it said.

Fashion retailer Burberry, which has a large exposure to China, Hong Kong and tourist sales, was down, with IG's Mahony pointing to investors weighing up the hit to Chinese spending from the trade tit-for-tat.

Smaller apparel and footwear retailer Footasylum saw its share priced nearly halved after it warned that profits would take a hit from higher costs as it invests more in its stores and website.

Elsewhere, equipment rental firm Ashtead was weaker after its full-year profit missed analysts' expectations, while Telecom Plus fell despite posting in-line full-year numbers.

Housebuilder and urban regeneration partner Countryside Properties was in the red after saying it has expanded its strategic partnership with Sigma Capital Group to deliver a further 5,000 private rental sector homes over the next three years.

Moneysupermarket was under the cosh as Barclays said a re-rating from here can only be justified if earnings per share growth returns to double-digit territory, trimming its target price to 310p from 315p.

Bucking the trend, satellite group Inmarsat rallied following a report that US rival EchoStar Corp is considering upping its offer for the company after its initial approach was rejected for being too low. According to Bloomberg, EchoStar is working with financial advisers on its bid.

Ferguson gained after the plumbing and heating products distributor, formerly known as Wolseley, posted a 17.1% jump in third-quarter trading profit thanks to strong US residential markets.

Capita rallied as it agreed to sell its Supplier Assessment Services unit for £160m in cash and after the outsourcer confirmed it had been awarded a British Ministry of Defence contract, beating rival Serco.

Shares in Royal Bank of Scotland were boosted by a note from Morgan Stanley, which increased its earnings per share forecast and upped its price target to 335p. .

In broker note action, Ferrexpo was upgraded to ‘buy’ at HSBC, while Informa was cut to ‘hold’ at Peel Hunt.

Market Movers

FTSE 100 (UKX) 7,603.85 -0.36%
FTSE 250 (MCX) 20,835.78 -0.78%
techMARK (TASX) 3,536.29 -0.43%

FTSE 100 - Risers

Just Eat (JE.) 806.60p 2.49%
Ferguson (FERG) 6,000.00p 1.87%
Royal Mail (RMG) 512.40p 1.55%
British American Tobacco (BATS) 3,688.50p 1.47%
Royal Bank of Scotland Group (RBS) 257.90p 1.34%
Centrica (CNA) 154.00p 1.15%
Reckitt Benckiser Group (RB.) 6,175.00p 1.13%
Imperial Brands (IMB) 2,621.00p 0.98%
Legal & General Group (LGEN) 267.40p 0.83%
Admiral Group (ADM) 1,897.50p 0.82%

FTSE 100 - Fallers

Smith (DS) (SMDS) 525.00p -4.48%
Ashtead Group (AHT) 2,267.00p -4.43%
Evraz (EVR) 514.60p -4.38%
Burberry Group (BRBY) 2,083.00p -3.79%
Rio Tinto (RIO) 4,120.00p -3.24%
Persimmon (PSN) 2,626.00p -2.78%
Glencore (GLEN) 371.70p -2.33%
Anglo American (AAL) 1,693.60p -2.27%
BHP Billiton (BLT) 1,642.20p -2.19%
Intertek Group (ITRK) 5,658.00p -2.18%

FTSE 250 - Risers

Capita (CPI) 163.40p 7.32%
BTG (BTG) 541.50p 4.13%
Inmarsat (ISAT) 540.60p 3.13%
Greencore Group (GNC) 184.15p 2.08%
TalkTalk Telecom Group (TALK) 113.40p 1.98%
Aveva Group (AVV) 2,826.00p 1.80%
PZ Cussons (PZC) 223.00p 1.64%
Hunting (HTG) 771.00p 1.18%
Virgin Money Holdings (UK) (VM.) 351.00p 1.07%
Provident Financial (PFG) 632.60p 0.96%

FTSE 250 - Fallers

McCarthy & Stone (MCS) 108.20p -17.09%
Kaz Minerals (KAZ) 852.00p -6.80%
RPC Group (RPC) 648.60p -5.64%
Moneysupermarket.com Group (MONY) 307.90p -4.70%
Vedanta Resources (VED) 661.40p -4.50%
Renewi (RWI) 80.80p -4.15%
Marshalls (MSLH) 404.60p -4.12%
Elementis (ELM) 278.20p -3.87%
Vesuvius (VSVS) 599.00p -3.70%
Dunelm Group (DNLM) 521.00p -3.52%