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(Alliance News) - Stocks in London ended sharply lower on Wednesday after the World Trade Organization gave Washington the greenlight to slap tariffs on USD7.5 billion worth of EU goods in retaliation for the bloc's illegal support of aerospace giant Airbus.
The ruling is the largest arbitration award in WTO history and a landmark moment the 15-year long Airbus-Boeing battle, which threatens to intensify already strained trade relations between the US and the EU.
The EU immediately threatened to respond to any US move.
"If the US decides to impose WTO authorised countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," Brussels said in a statement.
The decision marks the first time the US has been cleared under international trade law to slap countermeasures on EU imports, and the tariffs could be in place by the end of the month.
The FTSE 100 index closed down a massive 237.78 points, or 3.2%, at 7,122.54. The large cap index hit an intraday low of 7,119.72 in late afternoon trade and suffered its biggest drop since January 2016.
The FTSE 250 ended down 395.91 points, or 2.0%, at 19,476.91, and the AIM All-Share closed down 9.03 points, or 1.0%, at 865.95.
The Cboe UK 100 ended down 3.2% at 12,091.82, the Cboe UK 250 closed down 1.9% at 17,436.97, and the Cboe Small Companies ended up 0.7% at 10,676.06.
In European equities, the CAC 40 in Paris ended down 3.1%, while the DAX 30 in Frankfurt ended 2.8% lower.
"Market fears over a renewed US-EU trade war have been ramped up after the WTO confirmed rumours that they have given the green light to US tariffs on EU goods in response to Airbus subsidies. With markets having made tentative gains ahead of the US-China trade talks, we are seeing European stocks hit hard in anticipation of a widening rift between the US and EU, leading to a similar tit-for-tat trade war. Trump knows what hurts the EU most, and his willingness to act against auto makers could leave that sector exposed to future actions," said IG Group's Josh Mahony.
In the FTSE 100, only two companies managed to escape the sell off, as Flutter Entertainment ended the best performer, up 6.9%.
Flutter said it has agreed an all-share acquisition of Canadian online gambling firm The Stars Group.
The company formerly known as Paddy Power Betfair said the combined firm's annual revenue would have been GBP3.8 billion in 2018, making it the largest online betting and gaming operator globally.
Under the deal, Stars Group shareholders will receive 0.2253 of a new Flutter share in exchange for each Stars Group share. Upon completion of the merger, Flutter shareholders will own 55% and Star Group shareholders 45% of the combined firm.
The more-than GBP10 billion merged company will be based in Dublin, with a premium listing on the London Stock Exchange and a secondary listing on Euronext Dublin. Flutter Entertainment Chief Executive Officer Peter Jackson will lead the combined group.
Amid the M&A excitement, midcap peer William Hill closed up 4.0%.
Tesco, the only other blue chip stock to end higher, closed up 0.2% as investors shrugged off the shock resignation of the supermarket chain's Chief Executive Officer Dave Lewis.
Lewis will step down at the UK's biggest supermarket chain saying it has delivered its turnaround goals during the first half of its current financial year. Lewis will leave for personal reasons next summer and will be replaced by Ken Murphy, the former commercial chief of retail pharmacy Walgreens Boots Alliance.
"Margins have hit targets, and the brand has been refreshed. Savvy deals with Booker and Carrefour have created significant cost saving opportunities, and in a ferociously competitive marketplace, that's helped operating profit grow. With much of the heavy lifting complete it is perhaps a natural time for Dave Lewis to hand the reins to someone else," said analysts at Hargreaves Lansdown.
For the six months to August 31, Tesco reported 0.6% year-on-year growth in revenue to GBP31.91 billion from GBP31.73 billion. Pretax profit was up by 6.7% to GBP494 million from GBP463 million. Group sales, excluding fuel, rose slightly to GBP28.30 billion from GBP28.29 billion.
The pound was quoted at USD1.2300 at the London equities close, higher than USD1.2251 at the close Tuesday, as the UK urged the European Union to reach a compromise in bid to reach Brexit deal.
UK Prime Minister Boris Johnson wrote to European Commission President Jean-Claude Juncker saying he wanted to replace the agreed "backstop," which is designed to guarantee an open Irish border, with alternative customs arrangements.
Johnson favoured a looser free trade deal and said that "in these circumstances the proposed 'backstop' is a bridge to nowhere".
Setting out a five-point plan, Johnson claimed the proposals were "entirely compatible with maintaining an open border in Northern Ireland".
Under the plan there would be "decentralised" customs regimes, with paperwork conducted electronically as goods move between the two countries.
But Johnson acknowledged there would need to be a "very small number of physical checks", which he claimed could be conducted at traders' premises or other points in the supply chain - rather than at the border. He called for the two sides to work together to find "flexible and creative solutions", coupled with a joint commitment "never to conduct checks at the border in future".
Speaking at the Conservative Party conference, Johnson said the only alternative to his plan was a no-deal Brexit.
The PM said both sides "now need to consider whether there is sufficient willingness to compromise" to secure a deal by October 31, when Johnson has insisted the UK will leave the bloc with or without a deal.
Berenberg's Callum Pickering said: "UK Prime Minister Boris Johnson's latest plan for the Irish border is very likely a non-starter. Relative to what the EU and the Republic of Ireland could reasonably accept, Johnson offer does not look like the basis for an orderly Brexit on 31 October. By presenting it as his 'final offer', Johnson partly gives the impression that he is not really serious about a deal before 31 October.
"In our view, the UK parliament now faces a straight choice: unless is it ready to back the Brexit agreement largely as it stands, it must either accept a hard Brexit or topple Johnson and ask the EU for an extension that it will very likely grant."
On the economic front, UK construction remained in contraction in September, the latest IHS Markit/CIPS purchasing mangers' index showed.
The headline PMI came in at 43.3 in September, down from 45.0 in August. The reading, further below the neutral mark of 50, signals the building sector suffered even more severe downturn in September than was seen the previous month.
The euro stood at USD1.0951 at the European equities close, firm against USD1.0930 late Tuesday.
Stocks in New York were sharply lower at the London equities close as Tuesday's sell off continued, after worse-than-expected US data revived fears over the health of the global economy.
US equity markets ended in the red on Tuesday after data showed that US manufacturing activity fell to its lowest level since June 2009.
The DJIA was down 1.6%, the S&P 500 index down 1.7% and the Nasdaq Composite down 1.5% at London close on Wednesday.
US ADP employment data disappointed in September, figures released on Wednesday showed, lowering expectations for a stellar nonfarm payrolls reading later this week.
Payroll processor ADP said 135,000 jobs were added in the US in September, below expectations, according to FXStreet, of 140,000. Further, August's reading was revised down sharply to 157,000 from 195,000.
"The job market has shown signs of a slowdown," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, which produces the monthly National Employment Report. "The average monthly job growth for the past three months is 145,000, down from 214,000 for the same time period last year."
The ADP jobs data preludes the US jobs report for September slated for release on Friday.
"The fact that August number was revised lower and today's number also missed the forecast, this has set the stage for a lower reading on Friday. Today's bump in the gold price is mainly due to this and the chances are that the price may move above the USD1,500 mark soon. Having said this, tomorrow's non-manufacuring PMI is also important, but for now, the tone is negative for the upcoming number and the Fed's speech has even more important," ThinkMarkets analyst Naeem Aslam said.
Gold was quoted at USD1,501.40 an ounce at the London equities close, up from USD1,483.01 late Tuesday.
"Gold had been pushed higher by the exodus from equities. Traders are in full-blown flight to quality mode, which has ramped up the gold market. The metal incurred losses recently, but today it is back in fashion as dealers dump stocks," said CMC Markets analyst David Madden.
Brent oil was quoted at USD57.97 a barrel at the London equities close, down from USD59.28 late Tuesday.
Oil prices fell after the Energy Information Administration reported an inventory build of 3.1 million barrels for the week to September 27. Analysts had expected a more modest build of 1.57 million barrels.
The economic events calendar on Thursday has services PMI readings from France, Germany, eurozone and UK at 0850 BST, 0855 BST, 0900 BST and 0930 BST respectively. There are also eurozone producer prices and retail sales figures at 1000 BST.
Financial markets in China remain closed for 'Golden Week' and markets in Germany are closed for the Day of Unity holiday.
The UK corporate calendar on Thursday has interim results from fashion retailer Ted Baker and a trading statement from online trading company CMC Markets.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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