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London open: Stocks steady as Sino-US trade talks stall
London stocks were little changed at the open on Monday, with investors cautious as Sino-US trade talks remained deadlocked.
At 0845 BST, the FTSE 100 was flat at 7,200.73, while the pound was steady against the dollar and the euro at 1.3002 and 1.1579, respectively.
Investors were still waiting to see what counter-measures China will announce in retaliation for the increase in tariffs on $200bn of Chinese goods implemented by the US on Friday.
London Capital Group analyst Jasper Lawler said: “There are three possible outcomes from here. Firstly, a deal gets agreed quickly, secondly after extensive further negotiations a deal finally gets agreed or thirdly the talks completely break down and a full-blown trade war ensues. We are definitely not there yet. The base case scenario is that a deal will still be achieved, it is just going to take a lot longer than the market had been pricing in over recent months.”
Even news that President Trump will meet with China’s Jinping Xi at the G20 meeting in June has done little to stem risk aversion.
On home turf, there was growing concern over Prime Minister Theresa May’s ability to hold on to power as cross-party Brexit talks were close to collapse. Investors were also eyeing next week’s European elections as opinion polls pointed to a near wipe-out of the Conservatives.
In equity markets, British Gas owner Centrica was the top riser as it maintained its full-year guidance on cash flow and net debt but said a “challenging” environment due to falling gas prices, tariff caps, warmer weather and nuclear outages had forced it to conduct a strategic review of its portfolio.
Marks & Spencer was also on the front foot after an upgrade to ‘buy’ at Citi. “M&S is a business which is making itself more relevant for the next decade,” Citi said.
On the downside, shares in Metro Bank slumped as the challenger said plans to raise £350m of equity capital were well advanced after it was forced to reassure customers their money was safe. Metro announced the planned capital raising in February after lax accounting caused it to under-report the risk of millions of pounds of commercial property loans and loans to commercial buy-to-let operators. The error led to speculation about the bank’s financial strength which it sought to quash at the weekend.
CMC Markets analyst Michael Hewson said: “Not surprisingly shareholders are furious having already been tapped for £300m last summer and while the bank has announced this morning that the £350m capital raising is well advanced, they haven’t answered any of the questions around why the error happened in the first place.
“No-one has been held accountable despite the fact that the error was only spotted by the Bank of England, and not by the bank, or its own auditors.
“This clearly raises questions over the banks risk management procedures, as well as its corporate governance, something that investors are likely to raise later this month at the bank’s AGM.”
Diploma lost ground as it posted a 13% rise in first-half adjusted pre-tax profit but said there have been signs of a slowdown in the industrials seals market.
Victrex was also trading lower after the polymer solutions provider reported a 13% drop in first-half revenue to £145.7m, while Man Group was in the red after a downgrade to ‘neutral ‘ at Goldman Sachs.
