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(Alliance News) - US-China tensions notching up once again this week sent stocks in Europe tumbling on Friday, with the FTSE 100 shedding nearly 90 points despite some encouraging PMI data released in the morning.
London's blue-chip index was also weighed on by the likes of M&G, Vodafone and International Consolidated Airlines.
The FTSE 100 index closed down 87.62 points, or 1.4%, at 6,123.82, ending down 2.6% for the week.
The FTSE 250 ended down 224.61 points, or 1.3%, at 17,264.84 - down 0.5% since the start of the week - and the AIM All-Share closed down 6.74 points, or 0.8%, at 883.76, up 0.7% for the week.
The Cboe UK 100 ended down 1.4% at 610.41, the Cboe UK 250 closed down 1.0% at 14,688.30, and the Cboe Small Companies ended down 0.7% at 9,146.90.
In European equities on Friday, the CAC 40 in Paris ended down 1.5%, while the DAX 30 in Frankfurt crashed 2.0%.
Edward Moya, senior market analyst at Oanda, placed the blame for Friday's stock market losses on deteriorating US-China relations.
China said Friday it had revoked the license for the US consulate in the southwestern city of Chengdu, in retaliation for the closure of China's Houston consulate earlier this week.
The move is a "legitimate and necessary response to the unreasonable measures by the US", the foreign ministry said in a statement.
"The current situation in China-US relations is not what China desires to see, and the US is responsible for all this," the statement said.
Tensions have been escalating on multiple fronts between the world's two biggest economies, deteriorating further after Washington ordered the closure of the Houston consulate on Tuesday within 72 hours. China had threatened to retaliate if the US did not withdraw its decision.
Moya said: "Risk appetite is running out of steam as virus worries persist, it seems impossible to be constructive on China or the US, and as Congress might struggle to wrap up the coronavirus relief bill before benefits expire this month."
Even a raft of upbeat PMIs from Europe were unable to lift the mood.
UK private sector output growth hit a five-year high in July as the reopening of the domestic economy gathers momentum, IHS Markit said on Friday. The flash UK composite output index was 57.1 in July, up from 47.7 in June.
The July reading was the highest in five years.
The flash UK manufacturing purchasing managers' index reading was 53.6 in July, rising from 50.1 in June and higher than the market forecast of 52.0. The UK services business activity index was 56.6 in July, up from 47.1 in June. The July reading was the highest in five years and comfortably beat market expectations of 51.1.
The pound was quoted at USD1.2786 at the London equities close Friday, up compared to USD1.2752 at the close on Thursday.
Over in mainland Europe, eurozone business activity ticked up for the first time since February.
The flash Eurozone purchasing managers' composite output index set a 25-month high of 54.8 in July, up from 48.5 in June.
Both manufacturing and services returned to growth with index scores above 50. The rise in service sector output was the first since February, while the increase in factory production was the first reported since January 2019.
The flash Eurozone services PMI activity index read 55.1 in July compared to 48.3 in June. The manufacturing PMI was at 51.1, up from 47.4 in June. The flash Eurozone manufacturing PMI output index stood at 54.0 in July compared to 48.9 in June.
The euro stood at USD1.1635 at the European equities close Friday, up against USD1.1597 at the same time on Thursday and trading around its best levels in almost two years.
Against the yen, the dollar was trading at JPY105.85, down sharply compared to JPY106.91 late Thursday.
The US also saw an improvement in private sector activity, but its recovery lagged behind Europe.
The flash composite US output index rose to the neutral mark of 50.0 in July from 47.9 in June, marking a six-month high. Any reading over 50 indicates expansion and one below, contraction - signalling activity stabilised in July with growth just out of reach.
The services activity index rose to 49.6 from 47.9, another six-month high but remaining below the no-change mark of 50. The manufacturing purchasing managers' index rose to 51.3 from 49.8.
Joshua Mahony, senior market analyst at IG, commented: "The July US PMI underperformance highlights the potential for further greenback declines beyond today's 21-months lows in the dollar index. This stuttering US recovery also puts greater pressure on the Fed ahead of next weeks meeting, with expectations of enhanced forward guidance potentially falling short given ongoing concerns."
Stocks in New York were lower at the London equities close, with the Dow Jones down 0.4%, the S&P 500 index down 0.3%, and the Nasdaq Composite down 0.5%.
Brent oil was quoted at USD43.06 a barrel at the London equities close Friday, down from USD44.02 late Thursday.
Gold was quoted at USD1,900.17 an ounce at the London equities close Friday against USD1,894.10 at the close on Thursday, trading at its best price since 2011.
In London, M&G was leading the blue-chip fallers after Barclays cut the fund manager to Underweight from Equal Weight. The stock fell 6.0%.
Vodafone fell 4.7% after reporting the first quarter of its 2021 financial year was hurt by the Covid-19 crisis, driven by lower revenue from roaming and visitors, project delays and lower prepaid revenue in some smaller markets.
Vodafone said, in the first quarter ended June 30, total revenue slipped 1.4% to EUR10.51 billion from EUR10.65 billion a year ago and was down 2.8% on an organic basis. However, service revenue rose 1.3% to EUR9.11 billion from EUR8.99 billion, though was down 1.3% on an organic basis.
International Consolidated Airlines ended the session 4.8% lower. The British Airways owner has not ruled out an equity raise and said it is "evaluating the merits" of a EUR2.75 billion rights issue.
IAG noted media speculation over the possibility that it may undertake an equity raise.
"As detailed in its first-quarter financial results announcement on May 7, going into the crisis IAG had a strong balance sheet and liquidity with cash and undrawn facilities at April 30 of EUR10 billion," IAG said.
IAG added: "The group is evaluating the merits of a rights issue of up to EUR2.75 billion that would further strengthen IAG's balance sheet. No decision has been made as to whether or when to proceed with a rights issue."
Centrica surged to the top of the FTSE 250, up 16%, on the sale of its North American business Direct Energy for USD3.63 billion to Houston, Texas-based energy company NRG Energy.
The disposal increases the long-term strength of its balance sheet, Centrica said, with proceeds intended to be used to reduce net debt significantly and to make a contribution to the defined benefit pension schemes. The sale is also expected to result in a more stable financial profile for Centrica, with an increased proportion of its cash flows generated from contracted services, and removal of volatility that is inherent within Direct Energy business, the company added.
Separately, Centrica said it delivered a resilient first half performance overall against the backdrop of the Covid-19 pandemic. For the six months to June 30, the company's revenue fell to GBP10.70 billion from GBP11.57 billion last year and its pretax loss narrowed to GBP264 million from GBP569 million.
Elsewhere in London, Indivior shares bounced 38% - though having traded nearly 60% higher earlier in the afternoon - as it resolved criminal charges in the US related to its Suboxone film opioid dependence medication.
The felonies, issued in connection with a federal criminal investigation initiated by the US Department of Justice in 2013, include one count of conspiracy to commit mail, wire and health care fraud; one count of health care fraud; four counts of mail fraud; and 22 counts of wire fraud.
Indivior could have faced USD3 billion in fines related to the matters, but on Friday said it would pay USD600 million to resolve the charges.
"Indivior Solutions Inc, a wholly-owned subsidiary of Indivior PLC, has pleaded guilty to one count of making a false statement relating to health care matters in 2012," the company said Friday.
"Indivior will make payments to federal and state authorities totaling USD600 million over a period of seven years."
Indivior Solutions will now be excluded from participating in US government health schemes, though this ban will not affect other Indivior subsidiaries.
The UK corporate calendar on Monday has first quarter results from budget airline Ryanair as well as half-year results from data and events firm Ascential.
The earnings calendar picks up as next week progresses, with the likes of Reckitt Benckiser, Barclays, GlaxoSmithKline and Royal Dutch Shell all reporting, amongst a host of other blue-chip names.
The economic calendar on Monday is fairly light, with the Ifo's German business climate index at 0900 BST and US durable goods orders at 1330 BST.
The focus of next week will be the US Federal Reserve's interest rate decision on Wednesday, while second quarter GDP readings on Thursday from Germany and the US will also be eyed, followed by the same from the eurozone on Friday.
By Lucy Heming; lucyheming@alliancenews.com
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