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(Alliance News) - Soft economic indicators from China kept stocks in London on the back foot on Thursday, highlighting the damage being done by the ongoing US-China trade war, as investors await the signing of a phase one deal.
"There's never a shortage of analysts monitoring Chinese economic figures, but when the country is engaged in a trade war with the US, it's going to receive extra scrutiny. Misses on retail sales, industrial production and fixed asset investment does little for investor sentiment, especially at a time of uncertainty over the trade deal with the US," said Craig Erlam at Oanda.
He added: "Trump got a little ahead of himself last month when he claimed a phase one agreement had been reached and recent comments from both sides makes a signing ceremony this year increasingly unlikely. Investors have put a lot of stock on a partial deal between the two countries, should it not materialize we could see a swift reversal in the markets."
China on Thursday said it is discussing with the US "in depth" about a first phase trade deal and a potential rollback of tariffs, despite recent mixed messages over the lingering trade impasse.
Amid signs of easing tensions, the Chinese commerce ministry last week said the two sides had agreed on a plan to roll back tariffs in stages – only to have US President Donald Trump deny that any such plan had been made. Trump warned on Tuesday that he could even increase tariffs further if a partial deal with Beijing failed to materialize.
But China's commerce ministry spokesman Gao Feng sounded a more positive note on Thursday, and said Beijing was "willing to work together with the US...and to create conditions for the first phase of the agreement."
"If the two parties reach a first phase agreement, the extent of the tariff cancellations should fully reflect the importance of the first phase agreement," Gao said at a regular briefing in Beijing. "The two sides are discussing this issue in depth."
In Europe, UK retail sales also disappointed on Thursday, with the only positive surprise coming from Germany, as the continent's largest economy dodged a recession.
The FTSE 100 was 31.95 points lower, or 0.4%, at 7,319.26 Thursday midday. The FTSE 250 was down 11.37 points, or 0.1%, at 20,278.41, while the AIM All-Share was up 0.2% at 886.93.
The Cboe UK 100 index was down down 0.5% at 12,403.77. The Cboe UK 250 was flat at 18,210.31, and the Cboe UK Small Companies was up 0.1% at 11,276.48.
In Paris, the CAC 40 index was down 0.1%, while in Frankfurt, the DAX 30 was 0.4% lower in early afternoon trade.
Wall Street is pointed to a lower open on Thursday, with the Dow Jones, S&P 500 and Nasdaq Composite all pointed down 0.1%. To come in the US there is PPI at 1330 GMT, and Federal Reserve Chair Jerome Powell will testify before Congress at 1500 GMT.
Already released, UK retail sales growth disappointed in October as the key festive period looms.
The Office for National Statistics said the volume of retail sales fell 0.1% in October on the previous month, with only fuel and department stores reporting growth. Year-on-year, growth was 3.1%. Consensus, according to FXStreet, was for a monthly rise of 0.2% and annual growth of 3.7%.
"Following recent stagnation, a further dip in performance (albeit slight) will be a major concern for the sector as it heads into the busiest trading period of the year," commented Philipp Gutzwiller, head of retail at Lloyds Bank Commercial Banking.
"Large, omni-channel retailers have already put margin at the centre of their strategies for the months ahead, indicating that we can expect 'value' to be the key word this Christmas. With consumers increasingly seeking bargain prices sooner rather than later, the challenge will be pitching those big-ticket items at the right price while avoiding a race to the bottom," he said.
Elsewhere in Europe, data showed the German economy managed to avoid a third quarter recession by the skin of its teeth.
GDP in the three months to September 30 grew 0.1% sequentially. This followed a revised 0.2% contraction the previous quarter. If Germany's economy had shrunk again in the third quarter, the country would have entered a technical recession.
FXStreet consensus had seen a 0.1% quarter-on-quarter fall in GDP in the third quarter.
"This morning's news is positive, but let's remember that minimal growth is noting to get overly excited about," cautioned David Madden at CMC Markets.
Turning to equities, and London-listed Burberry was defying the gloom on Thursday as its shares advanced 5.2%.
The luxury fashion retailer affirmed its full-year guidance after reporting a first-half earnings rise, despite uncertainty in Hong Kong.
In the six months to September 28, revenue rose by 5.0% to GBP1.28 billion from GBP1.22 billion. Comparable store sales grew 4%, comprising 4% growth in the first quarter which accelerated to 5% in the second. The company, known for its checked print and trench coats, reported pretax profit increased by 11% to GBP193 million from GBP174 million.
Adam Vettese, an analyst at eToro, described Burberry's update as "very strong".
Looking ahead, the company said it expects sales in Hong Kong, where there is increased civil disruption, to remain under pressure.
Burberry's comments came as pro-democracy protesters in Hong Kong choked the city for a fourth straight working day on Thursday. The territory has entered its sixth month of protests, which have morphed from mass rallies into a "blossom everywhere" campaign of debilitating disruption by groups of black-clad mainly student demonstrators.
3i Group was the worst performer in London's FTSE 100, down 5.4% despite the private equity and infrastructure investment company reporting an increase in net asset value.
Net asset value per share was 873 pence at September 30, up 13% from 776p a year ago. The company reported "good performance" across its portfolios, with the Private Equity portfolio recording a gross investment return of GBP666.0 million, driven by assets including Action, Hans Anders, and Aspen Pumps.
Mexican gold miner Fresnillo's shares slipped 4.2% after Goldman Sachs cut the stock to Sell from Neutral.
FTSE 250 constituent FirstGroup slumped 21% on news of a widened interim loss.
Aberdeen-based bus and train operator FirstGroup posted a pretax loss of GBP187.1 million for the six months to September, from just GBP4.6 million the prior year. On an adjusted basis, which strips out exceptional items, pretax profit fell 32% to GBP28.7 million.
The company booked a GBP124.4 million impairment on its Greyhound bus operations in the US, as well as a reserve charge of GBP59.3 million for its North American self-insurance business. The company said the impairment was due to Greyhound's financial performance in recent months relative to budget, due to a decline in immigration on the southern US border and increased competition.
Card Factory dipped 4.2% as it saw a fall in third-quarter like-for-like sales.
Card Factory said like-for-like sales in the third quarter fell 0.3%, while sales were up 0.9% in the nine months to October 31. Total sales in the nine months grew 5.0%, a pace the company described as "robust".
QinetiQ shares gained 4.9%. The defence technology firm retained its annual forecasts on a solid interim performance.
Farnborough, Hampshire-based QinetiQ reported pretax profit of GBP71.3 million for the six months to the end of September, up 35% compared to GBP52.7 million a year prior, as revenue grew by 16% to GBP486.5 million from GBP420.3 million.
By Lucy Heming; lucyheming@alliancenews.com
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