London midday: Stocks hit by trade woes, sterling strength
London stocks were sharply lower by midday on Tuesday after US President Donald Trump suggested that a trade deal with China may not be reached until after the November 2020 US election, while a stronger pound and uninspiring data also weighed.
The FTSE 100 was down 1% at 7,212.22, while the pound was up 0.4% against the dollar and the euro at 1.2994 and 1.1730, respectively after a poll by Kantar showed that the Conservatives increased their lead over the Labour Party over the last week.
The poll put the Tories’ support at 44%, up one point from last week, while Labour’s support was steady at 32%.
Pound strength tends to weigh on the Footsie, as around 70% of its constituents derive most of their earnings from overseas.
In addition, escalating trade tensions undermined sentiment after Trump rattled markets further by suggesting there was no deadline for reaching a trade agreement with China. Speaking to reporters at a meeting with the head of Nato in London, Trump said that a deal with China would only happen if he wanted it to and may not be agreed until after the US elections next year.
"I don't think it's up to if they want to make it, it's if I want to make it. We'll see what happens," he said. "I'm doing very well if I want to make a deal, I don't know that I want to make it, they're going to find out pretty soon."
He added: "In some ways I think it’s better to wait until after the election with China. In some ways I want to wait until after the election for a China deal."
His comments came after the US threatened to slap tariffs on $2.4bn worth of French products such as champagne, handbags and cheese in response to the country’s new tax on US technology firms. The mood was already knocked on Monday after Trump announced on Twitter that he would be reintroducing tariffs on steel and aluminium from Brazil and Argentina.
Neil Wilson, chief market analyst at Markets.com, said: "The chances of a deal by Dec 15th just took another turn lower. Markets simply aren’t priced for this; for a trade deal to be that far in the future - if one can even be struck at all. After weeks of making generally positive noises on a deal being very close, there is a real sense now that a deal is not so very near at all and markets need to reprice."
However, he also cautioned that "Trump’s shoot-from-the-hip comments in this kind of interviews need to be taken with a dose of salt".
"We could just as easily see him row back on this later, as has happened countless times already," Wilson said.
On home turf, data released earlier showed that the construction sector remained in contraction territory in November amid uncertainty about Brexit and the upcoming general election.
The Markit/CIPS construction purchasing managers’ index edged up to 45.3 from 44.2 in October, beating expectations for a reading of 44.5 and signalling the slowest drop in overall construction output for four months. However, it remained below the 50.0 level that separates contraction from expansion.
All three areas of construction recorded a fall in output, with civil engineering the worst-performing category, followed by commercial building.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Brexit uncertainty, an impending General Election and wet weather all combined to keep the construction sector firmly in its contraction hole last month with purchasing, output and new orders falling again.
"Construction firms have not seen dwindling new orders for this length of time since 2013, as clients continued to defer spending large and small, citing political indecision as the cause of their non-committal. Preferring to hold on to cash reserves rather than spend in the current climate, this also translated into tighter job hiring strategies."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the construction sector was still weighed down by Brexit uncertainty, but next year should be better.
"A swift recovery in the next few months isn’t likely, given that the new orders index declined to 43.9 in November, from 44.6 in October. But the construction sector should benefit from much stronger growth in public sector net investment in the fiscal year beginning in April, whichever party wins the next election," Tombs said.
In equity markets, miners were among the worst performers amid worries about a trade war, with BHP and Glencore both lower, while steelmaker Evraz also fell.
Ocado was under the cosh for the second day in a row after announcing a £500m bond offering on Monday.
Plumbing and heating products distributor Ferguson was on the back foot after a trading update, while travel company TUI was dented by a downgrade to ‘neutral’ at Oddo and Aston Martin retreated after Goldman cut the stock to ‘neutral’.
Cineworld lost ground as it warned that full-year trading will be "slightly below" management’s expectations due a "weaker full year box office".
On the upside, Rightmove gained after an upgrade to ‘neutral’ at Goldman Sachs and gold miner Centamin was sitting pretty at the top of the FTSE 250 after its board unanimously rejected a £1.47bn takeover offer from Canada’s Endeavour Mining.
FTSE 100 - Risers
Polymetal International (POLY) 1,194.00p 2.01%
Fresnillo (FRES) 579.00p 1.33%
Rightmove (RMV) 627.00p 1.19%
Hiscox Limited (DI) (HSX) 1,363.00p 1.19%
Severn Trent (SVT) 2,219.00p 0.86%
Aveva Group (AVV) 4,542.00p 0.84%
British Land Company (BLND) 571.00p 0.81%
Diageo (DGE) 3,146.50p 0.72%
Berkeley Group Holdings (The) (BKG) 4,594.00p 0.64%
JD Sports Fashion (JD.) 762.40p 0.61%
FTSE 100 - Fallers
Evraz (EVR) 347.10p -6.97%
TUI AG Reg Shs (DI) (TUI) 990.60p -3.59%
Ferguson (FERG) 6,428.00p -3.45%
Ocado Group (OCDO) 1,196.50p -2.49%
Pearson (PSON) 624.40p -2.47%
Reckitt Benckiser Group (RB.) 5,891.00p -2.43%
BHP Group (BHP) 1,677.80p -2.39%
Carnival (CCL) 3,155.00p -2.38%
Glencore (GLEN) 239.35p -2.23%
BAE Systems (BA.) 549.20p -2.14%
FTSE 250 - Risers
Centamin (DI) (CEY) 120.85p 7.71%
Hochschild Mining (HOC) 165.30p 2.54%
Big Yellow Group (BYG) 1,108.00p 1.00%
4Imprint Group (FOUR) 3,140.00p 0.96%
Spirent Communications (SPT) 212.00p 0.95%
Marshalls (MSLH) 777.50p 0.91%
LondonMetric Property (LMP) 230.60p 0.79%
Kainos Group (KNOS) 596.00p 0.68%
Daejan Holdings (DJAN) 5,260.00p 0.57%
Bellway (BWY) 3,332.00p 0.57%
FTSE 250 - Fallers
Aston Martin Lagonda Global Holdings (AML) 504.80p -4.29%
Kaz Minerals (KAZ) 465.40p -4.28%
Wood Group (John) (WG.) 327.50p -3.70%
Ferrexpo (FXPO) 142.00p -3.66%
Synthomer (SYNT) 295.20p -3.66%
Brewin Dolphin Holdings (BRW) 337.40p -3.66%
Go-Ahead Group (GOG) 2,128.00p -3.62%
Virgin Money UK (VMUK) 170.35p -3.51%
Restaurant Group (RTN) 140.60p -3.10%
Mediclinic International (MDC) 384.00p -3.08%