(Alliance News) - The FTSE 100 was on the back foot early Thursday as relations between the US and China soured over Hong Kong, while the pound rose on a poll predicting a safe majority for the Conservative party in next month's UK election.
The FTSE 250, however, fared slightly better as Virgin Money shares surged despite the lender taking further PPI provisions and skipping its dividend.
The London large-cap index was down 38.94 points, or 0.5%, at 7,390.84 early Thursday. The mid-cap measure was up just 5.39 points at 20,959.71, and the AIM All-Share was flat at 920.30.
The Cboe UK 100 index was down 0.4% at 12,530.10. The Cboe UK 250 was up 0.1% at 18,833.89, and the Cboe UK Small Companies was down 0.1% at 11,396.50.
In European equities, the CAC 40 index in Paris was down 0.3% and the DAX 30 in Frankfurt 0.4% lower in early trade.
Denting sentiment on Thursday were fresh tensions between the US and China.
China's foreign ministry summoned the US ambassador on Thursday, urging Washington to refrain from applying a new law supporting Hong Kong's pro-democracy movement to "avoid further damage" to relations.
Chinese Vice Foreign Minister Le Yucheng lodged a "strong protest" with Ambassador Terry Branstad after President Donald Trump signed the legislation into law.
Trump had seemed reluctant to sign the legislation, but came under heavy pressure from Congress, where the issue has attracted rare bipartisan support. In a statement, Trump spoke of "respect" for Chinese President Xi Jinping and said he hoped the "leaders and representatives of China and Hong Kong will be able to amicably settle their differences".
In Hong Kong, the government expressed "extreme regret" after Trump signed legislation requiring an annual review of freedoms in Hong Kong and banning the sale of crowd control equipment such as tear gas.
"The market has probably gotten used to this kind of 'back and forth'. At the end of the day, the deal is not off the table. But the road towards it (even the phase-1 deal) is bumpy. Given all the recent developments, the phase-1 deal is likely to be delayed (again!). If this is the case, the next key event will be whether the proposed tariffs on 15 December could be postponed to pave the way for a deal," said Commerzbank.
In Asia on Thursday, the Japanese Nikkei 225 index closed down 0.1%. In China, the Shanghai Composite closed down 0.5%, while the Hang Seng index in Hong Kong ended 0.2% lower.
At the bottom of London's FTSE 100 were ex-dividend stocks such as Vodafone and Johnson Matthey, down 3.3% and 2.7% respectively.
Meanwhile, equipment rental firm Ashtead Group fell 2.4% after HSBC downgraded its rating on the stock to Hold from Buy.
Shares in Virgin Money, formerly known as CYBG, surged 16% after it said it delivered a good performance in "challenging conditions", though suspended its dividend on PPI provisions.
Net interest income for the financial year to September 30 was GBP1.51 billion, nearly double the GBP851 million achieved the year before. Total operating income was GBP1.75 billion, up from GBP1.01 billion.
The company's pretax loss deepened, however, to GBP232 million from GBP164 million.
"Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August, along with anticipated Virgin Money acquisition-related costs," explained Chief Executive David Duffy.
Virgin Money said it was "frustrating" to take GBP385 million in additional PPI provisions for the fourth quarter as it looks to "close out this legacy issue". Meanwhile, acquisition costs in the period totalled GBP189 million and restructuring costs GBP156 million.
The dividend has been suspended for the recently ended financial year in light of additional PPI provisions, and the board will "reconsider" dividends for the 2020 financial year.
Jefferies commented: "Key for investors heading into FY19 results was the size of PPI charge and also any net interest margin disappointment. On PPI, the company took a charge of GBP385 million in H2 which compares to our estimate of GBP450 million."
Marine services firm James Fisher & Sons fell 4.8% after saying it expects profit for the full-year to be ahead of 2018, but "modestly below" board expectations.
Offshore Oil and Tankships have seen trading "well ahead" of the prior year, reflecting improved market conditions in the oil and gas sector.
Specialist Technical continued to perform broadly in line with a strong prior year comparative while Marine Support's performance improved in the period following a slow start to the year.
Marine Support experienced a "robust recovery" in ship-to-ship services, James Fisher said, but a slower-than-anticipated return from investments made in the first half resulted in a lower financial performance than planned in the period.
"The group anticipates continued good performance in its Offshore Oil and Tankships divisions for the remainder of the year. Specialist Technical is expected to perform broadly in line with the previous year and Marine Support to recover from its performance in the period," said James Fisher.
While "modestly below" board expectations, pretax profit for 2019 is expected to be above last year's GBP56.1 million.
Transport operator Go-Ahead Group, down 3.3%, said its performance in both bus and rail have been mixed.
The performance of regional bus operations has been "slightly weaker" than expected in the period June 30 to November 27. London & International bus continued to perform well, however.
In rail, overall expectations remain unchanged with a good performance in the UK offsetting a challenging operational start to two new German contracts.
In the UK, the pound was higher, quoted at USD1.2940 early Thursday, up from USD1.2872 at the London equities close on Wednesday.
"GBP has enjoyed support overnight from a YouGov poll using a very large sample size...GBP/USD has rallied around 0.3% since the survey was released late last night and can probably press resistance at USD1.2985/3015 in US holiday-thinned markets," said ING.
The constituency-by-constituency estimate by YouGov, published in The Times, indicates that if the election was held on Thursday, the Conservative Party would win 359 seats, 42 more than they took in 2017. It would also take 43% of the vote, and in number of seats this would be its best performance since 1987.
Labour, meanwhile, is set to lose 51 seats, falling from 262 seats in 2017 to 211 now, and taking 32% of the vote, a nine percentage point decrease. This would be the party's worst performance in seats won since 1983, YouGov said, adding that the opposition is on course to not take any new seats.
Chris Curtis, political research manager at YouGov, said the current analysis shows the Tories have a "comfortable majority", with seats coming their way at the expense of Labour in the North and Midlands.
In other currencies, the euro was quoted at USD1.1011 early Thursday, firm from USD1.1005 late Wednesday. Against the yen, the dollar was quoted at JPY109.36, up versus JPY109.26.
In commodities, gold was quoted at USD1,457.73 early Thursday, up on USD1,455.35 at the London equities close on Wednesday.
Brent oil was quoted at USD62.72 early Thursday, soft compared to USD62.92 at the London equities close on Wednesday.
The economic events calendar on Thursday has German inflation at 1300 GMT. Markets in the US will be closed on Thursday for the Thanksgiving Day holiday, and will open on Friday for a half-day only as shoppers celebrate 'Black Friday'.
By Lucy Heming; lucyheming@alliancenews.com
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