LONDON MARKETS: FTSE 100 Holds Gains As Pound Rises On Carney's Rate-hike Signal

By Carla Mozee, MarketWatch

U.K. stocks moved higher Thursday, with sentiment across European equities lifted by prospects that a dispute over U.S. and EU auto tariffs may be resolved, but gains for stocks come before the U.S. and China remain on a collision course to impose levies on each other's products.

How markets are moving

The FTSE 100 index rose 0.5% to 7,608.63, as the basic materials and oil and gas sectors led advancers. But the consumer goods group led decliners. The benchmark on Wednesday lost 0.3% (http://www.marketwatch.com/story/ftse-100-pulls-back-as-trade-tensions-keep-bubbling-away-2018-07-04).

The pound rose to $1.3256 from $1.3230 late Wednesday in New York. Sterling rose as Bank of England Gov. Mark Carney, in a speech Thursday, signaled that a possible interest rate increase could take place sooner rather than later. Recent economic data suggests that weather -- not the economic climate-- was largely responsible to softness in U.K. economic activity during the first quarter, he said.

What's driving markets

London's blue-chips market got a boost alongside other European stock markets , particularly Germany's as the DAX 30 benchmark hosts some of Europe's largest car makers, including Volkswagen AG (VOW.XE).

Those moves came as a U.S. official told Germany's auto chiefs that the U.S. would be prepared to stop threatening to impose stiff tariffs on cars imported from the European Union if the bloc implements a so-called "zero solution" by getting rid of tariffs on U.S. cars, German newspaper Handelsblatt reported.

Don't miss:How Trump's European auto tariff proposal could backfire (http://www.marketwatch.com/story/how-trumps-european-auto-tariff-proposal-could-backfire-2018-06-22)

However, trade war concerns are still overhanging equity markets. On Friday, the U.S. plans to impose $34 billion worth of duties on Chinese products, and Beijing is expected to implement its own retaliatory tariffs the same day -- though China's customs bureau said it would not act (http://www.marketwatch.com/story/china-says-its-own-tariffs-will-kick-in-only-after-a-us-move-2018-07-05) until the U.S. had put its levies into effect. There's a 12-hour time difference between Beijing and Washington.

The tariffs on Chinese products will backfire on the U.S (http://www.marketwatch.com/story/us-hurting-the-world-and-itself-over-trade-tariffs-say-china-officials-2018-07-05)., Beijing officials said Thursday, as $20 billion of the $34 billion in goods targeted are made by foreign companies in China.

"The U.S. is firing shots to the world, including to itself," said Gao Feng, a spokesman for China's Commerce Ministry, at a media briefing Thursday.

The U.K. government is still grappling with its Brexit plan ahead of Friday's retreat for Prime Minister Theresa May's cabinet at Chequers, the prime minister's country house located roughly 40 miles north west of London.

Check out:Fitch warns Trump's trade fight could cost the world $2 trillion in global trade (http://www.marketwatch.com/story/fitch-warns-president-trumps-trade-fight-could-cost-the-world-2-trillion-in-global-trade-2018-07-03)

And see:How will investors know if there's a full-blown trade war? Here's what Wall Street says (http://www.marketwatch.com/story/how-will-investors-know-if-theres-a-full-blown-trade-war-heres-what-wall-street-says-2018-07-03)

What strategists are saying

"So what do trade wars mean for financial markets? Clearly they are negative for equities. Economic growth would suffer, both short and longer term," said Dario Perkins, managing director of global macro research at TS Lombard, in an note. "If we are also facing 'de-globalization', then we are probably talking about a lower equilibrium profits share," he said.

"We are not saying that a major trade war is now inevitable, or even that this is the likeliest outcome. But rather that the chance of a quick resolution--the working assumption of most investors in 2018 -- is fading away," said Perkins.

"Already a sizable group of Brexiteer rebels have said that the Tories will be "toast" if they fail to agree on a clean break from Brussels after 2019. A softer Brexit stance may assuage market concerns, particularly the Brexit-sensitive pound," said Kathleen Brooks at online brokerage Capital Index, in an note.

However, "any bounce post the [Chequers] meeting on Friday could be short-lived. If Theresa May openly defies the Brexiteers they may do her in once and for all, and a leadership contest in this environment could be one of the most pound-negative events so far this year," wrote Brooks.

Stock movers

Associated British Foods PLC shares (ABF.LN) dropped 4.4% as the company said sales growth for its core Primark retail business slowed (http://www.marketwatch.com/story/ab-foods-shares-fall-as-primark-sales-growth-slows-2018-07-05) because of delays and changes in selling space. But it expects higher profit from Primark for fiscal 2018, while profit from its sugar business is expected to decline.

Glencore PLC (GLEN.LN) rose 2.8% after the mining and commodities trader said it would launch a plan to buy up to $1 billion in shares in a two-stage process.

Off the main benchmark, shares of Superdry PLC (SDRY.LN) leapt 10% after the clothing retailer declared a special dividend (http://www.marketwatch.com/story/superdry-2018-pretax-profit-falls-23-2018-07-05), saying that it delivered double-digit growth in sales and underlying profit. But its fiscal 2018 pretax declined by more than 20%.

Economic data

The number of new cars registered in the U.K. fell 3.5% in June (http://www.marketwatch.com/story/uk-new-car-registrations-fall-in-june-2018-07-05), compared with the same month the previous year, a sign that the market is stabilizing following turbulence over the past year or so.

The Federal Reserve may mention that global trade disputes could pose a risk to U.S. economic growth outlook when the central bank releases minutes from its June policy meeting at 2 p.m. Eastern, or 7 p.m. London time (http://www.marketwatch.com/story/fed-minutes-preview-suggestions-the-fed-slow-down-interest-rates-probably-didnt-get-much-love-in-june-2018-07-03).

Traders are also beginning to focus somewhat on the monthly U.S. jobs report, due Friday.

(END) Dow Jones Newswires

July 05, 2018 07:07 ET (11:07 GMT)

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