London midday: Turkey woes drag stocks lower; Q2 UK GDP in line

London stocks were still in the red by midday on Friday, tracking losses in Europe amid concerns about the impact of the Turkish crisis on European banks, even as the latest UK GDP reading showed that growth picked up as expected in the second quarter.

The FTSE 100 was down 0.6% to 7,696.26, while the pound was off 0.3% against the dollar at 1.2786, trading below 1.28 for the first time in almost a year, and up 0.3% versus the euro at 1.1156

Data from the Office for National Statistics showed that UK gross domestic product quarter to June grew 0.4% more than the first three months of 2018, in line with the Bank of England's prediction and the average forecasts of economists, picking up from the disappointing 0.2% growth in the first quarter.

GDP was 1.3% higher compared to the second quarter last year, also as anticipated, up from 1.2% annual growth in the first quarter.

The services industries and construction increased by 0.5% and 0.9% respectively on the first quarter, while production decreased by 0.8%. Household spending grew by 0.3% and business investment rebounded to 0.5% from a 0.4% decline.

The ONS noted that the figures included the "second consecutive quarter of negative growth in manufacturing", meaning the sector was technically in a recession.

Head of National Accounts Rob Kent-Smith said: "The economy picked up a little in the second quarter with both retail sales and construction helped by the good weather and rebounding from the effects of the snow earlier in the year. However, manufacturing continued to fall back from its high point at the end of last year and underlying growth remained modest by historical standards.

"The UK’s trade deficit noticeably worsened as exports of cars and planes declined sharply while imports rose."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "In today’s economic climate 0.4% quarterly growth draws a small cheer from the crowd, though it would have been deemed below par prior to the financial crisis. In the ten years running up to the crisis, UK economic growth averaged 0.73% per quarter.

"Indeed a rather less than encouraging assessment of the UK’s economic prospects can be found in the performance of the pound, which has slipped back below $1.30 against the dollar in the last week, despite a rise in UK interest rates. Fears over the potentially negative impact of Brexit clearly play a part in this, however we shouldn’t ignore the fact this particular coin is two sided, and dollar strength is a contributing factor alongside sterling weakness."

But it was broader developments driving sentiment on Friday, with European markets under the cosh as the euro tumbled to a new yearly low below $1.15 on worries that Turkey’s problems may be spreading to Europe. The single currency took a dive after a report in the Financial Times suggested that the European Central Bank sees BBVA, UniCredit and BNP Paribas as particularly exposed to the Turkish lira's declines.

The lira - which has been under pressure on the back of worries about Turkish President Erdogan’s influence over monetary policy - fell to an all-time low beyond TL6 against the dollar after a meeting on Friday between a Turkish delegation and US officials yielded no solution to a diplomatic rift over the detention of a US pastor in Turkey.

IG Market analyst Chris Beauchamp said: "The FTSE 100 has extended its losing streak from yesterday, eating further into the gains made earlier in the week, while the ECB’s warning about bank exposure to Turkey has resulted in the steady flow of early losses on the continent turning into a full-blown rout.

"'Contagion’ is now the watchword, as markets, hobbled by thin summer liquidity, wonder where the Istanbul problem will make itself felt next."

With little going on on the corporate front, Mike Ashley provided some distraction from the Turkish lira’s woes as Sports Direct announced the acquisition of House of Fraser from its administrators for £90m in cash. Debenhams, the department store chain in which SPD has a 30% stake, rallied.

Ryanair flew a little lower as the budget airline cancelled one in six flights due to a pilot walkout, while IP Group edged up after saying it has committed to investing £5m in portfolio company Artios Pharma as it raises £65m in a Series B financing.

SSP slipped after saying it has found investors for a $175m issue of US bonds to replace existing debt and for general corporate purposes.

Diageo ticked up as it told its broker to kick off the first swathe of its £2bn share buyback. Citigroup will begin purchasing the drinks giant's shares up to a value of up to £1.4bn, with further tranche to be announced by the FTSE 100 company later in the financial year to June 2019.

On the broker note front, RBS was upgraded to ‘buy’ from ‘neutral’ by UBS, while Hill & Smith was cut to ‘hold’ at Berenberg.

Rolls-Royce was reduced to ‘underweight’ at JPMorgan and Evraz was downgraded to ‘sell’ at VTB Capital.

Market Movers

FTSE 100 (UKX) 7,696.26 -0.59%
FTSE 250 (MCX) 20,728.54 -0.37%
techMARK (TASX) 3,584.65 -0.61%

FTSE 100 - Risers

Carnival (CCL) 4,617.00p 1.90%
Royal Mail (RMG) 466.90p 1.61%
TUI AG Reg Shs (DI) (TUI) 1,566.00p 1.52%
National Grid (NG.) 815.20p 0.59%
WPP (WPP) 1,224.50p 0.57%
Legal & General Group (LGEN) 266.00p 0.57%
Whitbread (WTB) 4,014.00p 0.25%
Pearson (PSON) 919.20p 0.24%
Berkeley Group Holdings (The) (BKG) 3,716.00p 0.22%
Experian (EXPN) 1,904.50p 0.16%

FTSE 100 - Fallers

Evraz (EVR) 512.40p -8.57%
Fresnillo (FRES) 965.90p -5.49%
Randgold Resources Ltd. (RRS) 5,396.00p -3.61%
Rolls-Royce Holdings (RR.) 1,053.50p -2.81%
Paddy Power Betfair (PPB) 7,360.00p -2.52%
Anglo American (AAL) 1,677.00p -2.02%
Antofagasta (ANTO) 960.20p -1.92%
Mondi (MNDI) 2,186.00p -1.75%
Rio Tinto (RIO) 3,814.50p -1.73%
Glencore (GLEN) 324.77p -1.65%

FTSE 250 - Risers

Charter Court Financial Services Group (CCFS) 347.55p 3.19%
Rank Group (RNK) 184.20p 3.02%
Wetherspoon (J.D.) (JDW) 1,267.00p 2.43%
Clarkson (CKN) 2,610.00p 2.35%
Keller Group (KLR) 1,044.00p 2.15%
Just Group (JUST) 101.60p 2.06%
IP Group (IPO) 122.40p 2.00%
Games Workshop Group (GAW) 3,255.00p 1.72%
Mediclinic International (MDC) 492.80p 1.63%
Ibstock (IBST) 245.00p 1.58%

FTSE 250 - Fallers

TBC Bank Group (TBCG) 1,656.00p -3.38%
On The Beach Group (OTB) 419.50p -3.34%
Hill & Smith Holdings (HILS) 1,090.00p -3.11%
Polymetal International (POLY) 651.00p -2.81%
Centamin (DI) (CEY) 111.95p -2.40%
Intu Properties (INTU) 169.65p -2.36%
Equiniti Group (EQN) 209.00p -2.34%
Ted Baker (TED) 2,192.00p -2.32%
Aveva Group (AVV) 2,620.00p -2.24%
esure Group (ESUR) 204.60p -2.20%