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London open: Stocks rebound with relief as geopolitical tension comes off boil
London stocks started the week on the front foot, relieved as the battery of geopolitical concerns eased ahead of a busier week for macroeconomic issues.
After half an hour of trading on Monday, the FSTE 100 was up 32 points or 0.44% to 7,342.02. The pound was down almost 0.1% against the dollar at 1.30002, little changed for the last 10 days, while the long slide against the euro eased off, roughly flat at 1.1001.
Helping market sentiment amid the thin summer volumes was the simmering down of tensions between the US and North Korea, helped by a phone call between US president Donald Trump and Chinese counterpart Xi Jinping.
Xi urged calm on both sides and told Trump that all sides needed to show restraint and avoid making inflamatory remarks, with both leaders in agreement that North Korea needed to avoid provocative behaviour.
Aiding the mood was preliminary Japanese second quarter GDP figures coming in significantly stronger than expected at 4.0% year-on-year versus the 2.5% expected, driven by an increase in domestic consumption.
This was balanced by China’s National Bureau of Statistics reporting that industrial production in the country slowed to a 6.4% year-on-year rate in July, below the consensus forecast of 7.1% and down from a 7.6% pace in the month before.
Chinese retail sales were also on the weak side, printing at 10.4% in terms of the year-on-year rate of change, down from 11.0% in the previous month and below the consensus of 10.8%.
The same was true of the the latest figures for fixed asset investment in the People’s Republic, which slowed from a 8.6% rise over the first six months to June to 8.3% for the year to the end of July.
UK retail data was focused on footfall, with the a dip of 1.1% in July according to figures by the British Retail Consortium and Springboard.
A survey among accountants found confidence among British businesses has fallen sharply amid mounting concerns about the domestic political backdrop and evidence that a weaker pound has failed to deliver a significant boost to exports.
Looking at the dollar, a key influence on the direction of London’s blue chip benchmark, there are two major developments that will dictate the price action over the next few days, said analyst Konstantinos Anthis at ADS Securities.
“Firstly, parts of the Trump administration are now trying to downplay the possibility of an actual military conflict between the US and North Korea. There is clearly a coordinated effort to ease the tensions between the two countries and it might be the first step towards a more stable geopolitical environment after a period of elevated rhetoric.
“Secondly, the markets will start to react to the lower US inflation figure which was released last Friday.”
He reminded that there remains strong fundamental backing behind the major equity markets, with low interest rates the key catalyst, “so stock traders will probably find the opportunity to re-establish their long bets at lower prices after the recent pullback”, though gold prices are at a crossroads.
“A potentially less uncertain geopolitical environment would mean that the previous rally would correct lower and this might be the next move in the short – term. However, the softer US data means the broader outlook for the yellow metal looks bullish and investors might continue to treat gold as a buy even if a correction sends the price lower.”
In company news, Standard Life Aberdeen was top of the leaderboard as the two Scottish asset managers completed their merger, also confirming the make-up of the new combined board.
Clarkson was up slightly after reporting profits tax before rising by a quarter to reach £21.9m at the half-year stage as the shipping services group’s top line increased from £147.2m to £156.8m.
Greencoat UK Wind was down a tad after agreeing to acquire the North Hoyle and Slieve Divena wind farms from institutional investors for close to £105m. The acquisitions, which are expected to complete in August 2017, will add 90 MW capacity and are being funded by an existing revolving credit facility.
