ADVFN Morning London Market Report: Wednesday 11 July 2018

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London open: Stocks get clobbered as Trump ramps up China trade war

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London stocks took a beating in early trade on Wednesday as trade war concerns reared their head once again after Washington announced plans to impose tariffs on an extra $200bn of Chinese goods.

At 0840 BST, the FTSE 100 was down 1.2% to 7,601.94, while the pound was off 0.1% against the dollar at 1.3270 and 0.1% firmer versus the euro at 1.1315. All major European equity benchmarks were down at least 1%.

Overnight, US officials released a list of thousands of Chinese imports that will be hit with the additional tariffs, including hundreds of food products, tobacco, chemicals, coal, steel and aluminium. The list also includes a number of consumer goods, including car tyres, bicycles, furniture and handbags, that are due to be hit with a 10% tax as early as September, on top of the 25% tariffs on $34bn worth of Chinese imports that came into effect last week.

China will definitely take trade counter-measures and protect its “legitimate rights”, the Ministry of Foreign Affairs told reporters.

Spreadex analyst Connor Campbell said: “That’s a significant ramping up of the measures put in place last Friday, when the two nations tit-for-tatted tariffs on $34bn in respective imports, and has once again shoved the issue – which the markets often seen keen to avoid – back in investors’ faces, causing a return to the nuance-free trading that plagued parts of May and June.

“Now nervously waiting for whatever China’s retaliation will be – beyond the immediate criticism of the proposal by Beijing – the markets went into panic mode on Wednesday.

“There doesn’t appear that could challenge this latest trade war twist for market dominance on Wednesday, though any further political chaos in the UK could make things worse for the FTSE and pound. How things are by the day’s end may well depend on what, if anything, China does in the next few hours.”

In UK corporate news, Burberry was under the cosh after the luxury brand reported a flat first quarter of sales due to currency headwinds but 3% growth at constant currency rates. There was no change to full year guidance for underlying sales but some easing of currency effects was expected at current rates.

Software group Micro Focus International retreated despite reiterating its full-year revenue guidance.

Down on the FTSE 250, Indivior tanked more than 30% after warning that sales and profits would be lower than expected this year due to generic versions of its products.

Glencore lost ground after saying it has set up a board committee to oversee its respond to the US authorities’ demands for documents on its business in the Democratic Republic of Congo, Venezuela and Nigeria as part of a corruption probe.

Sky shares fell as Rupert Murdoch’s 21st Century Fox upped its offer for the shares it does not already own to £14 per share, trumping the latest offer from Comcast by around 12% but below the previous day’s £15.01 close.

On the upside, housebuilder Barratt Developments was the top gainer after saying it expects annual pre-tax profits to come in at a record £835m, up from £765.1m in 2017 after reaching its highest level of completions for a decade.

Pub group JD Wetherspoon fizzed higher after reporting a jump in like-for-like sales in the 10 weeks to 8 July and saying results for the year should be in line with previous expectations.

Builders’ merchant Grafton Group was higher as it posted a rise in first-half revenue thanks to the warm weather.

On the broker note front, Playtech was cut to ‘neutral’ at Credit Suisse, while CYBG and Virgin Money were downgraded at KBW. BHP was cut to ‘hold’ at Renaissance Capital.

Next and Equiniti were lifted to ‘neutral’ at Credit Suisse, while Coca-Cola HBC was upgraded to ‘buy’ at Jefferies. HSBC was boosted to ‘overweight’ at JPMorgan and Drax was upgraded to ‘outperform’ at Macquarie, while Vodafone was initiated at ‘reduce’ by Kepler Cheuvreux.

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