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LONDON MARKETS: FTSE 100 Stumbles 1% As U.S. Remains On Collision Course Over Global Trade

02/07/2018 10:04am

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By Carla Mozee, MarketWatch

Analyst: 'The prospect of a downward spiral is very real'

Blue-chip stocks in the U.K. dropped Monday, as they started 2018's second half pressured by worries that the U.S. remains on course to ramp up its trade fight against China and the European Union.

How markets are moving

The FTSE 100 index dropped 1.1% to 7,555.89. All but the tech sector fell, and decliners were led by the basic materials group which includes mining stocks. The benchmark on Friday rose 0.3% (http://www.marketwatch.com/story/uk-stocks-rise-head-for-best-quarter-since-2010-2018-06-29) and marked an 8.2% jump for the second quarter, the biggest quarterly rise since 2013.

The pound fell to $1.3163 from $1.3205 late Friday in New York. The pound leapt above $1.3200 on Friday after U.K. first-quarter economic growth was upwardly revised (http://www.marketwatch.com/story/uk-first-quarter-economic-growth-revised-higher-2018-06-29).

What's driving markets

U.K. and European equity markets slid at the open, mirroring sharp declines in Asian equities , while U.K. stock futures were moving lower.

Chinese economic activity data showed signs of stress stemming from the trade dispute between the U.S. and China, the world's largest economies. A subindex in China's official manufacturing purchasing managers' index that gauges demand for Chinese exports contracted to 49.8 in June from 51.2 in May (http://www.marketwatch.com/story/chinas-official-manufacturing-pmi-misses-views-2018-07-02). The Shanghai Composite tumbled 2.5% and fell further into a bear market on Monday following the data.

On Sunday, U.S. President Donald Trump in a Fox News interview once again claimed European officials haven't acted fairly in its trade relationship with the U.S.

"The European Union is possibly as bad as China, just smaller. It's terrible what they do to us," said Trump, who also touched on the European auto industry.

"Take a look at the car situation, they send their Mercedes in, we can't send our cars in. Look what they do to our farmers? They don't want our farm products," he said.

The U.S. has already imposed tariffs on steel and aluminum imports from the EU, and the 28-nation trade bloc has issued levies in response.

This marks a key week for potential trade developments as the Trump administration is expected on Friday to formally impose tariffs on a round of Chinese goods, and Beijing is expected to retaliate.

Mining stocks on the FTSE 100 are being hit hard on concerns about reduced demand for metals from China, the world's largest buyer of copper.

Read:Trade-war fears? These lower-risk stocks are weathering the market storms (http://www.marketwatch.com/story/trade-war-fears-these-lower-risk-stocks-are-weathering-the-market-storms-2018-06-30)

What strategists are saying

"After spending weeks not fully pricing in the downside risks, as investors hoped that there would be a last-minute reprieve rather than a global trade war, investors are waking up to the potential reality of a trade war and what that means for the wider markets," said Rebecca O'Keeffe, head of investment at Interactive Investor, in a note.

"Falling Chinese exports will subdue the commodity markets, individual tariffs will markedly affect sectors and their wider supply chain, and the prospect of a downward spiral is very real."

Stock movers

Among mining shares, Anglo American PLC (AAL.LN) stumbled 3%, Antofagasta PLC (ANTO.LN) dropped 2.7%, and BHP Billiton PLC (BLT.LN) (BLT.LN) (GLEN.LN)gave up 2.5%.

Micro Focus International PLC shares (MCRO.LN) leapt 4.6% after the U.K. software maker said it will sell its SUSE business segment to a fund led by Swedish private equity company EQT for $2.5 billion (http://www.marketwatch.com/story/micro-focus-to-sell-suse-for-25-billion-shares-rise-2018-07-02).

 

(END) Dow Jones Newswires

July 02, 2018 04:49 ET (08:49 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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