(Alliance News) - The FTSE 100 index was lagging counterparts in Europe on Monday as the pound held firm despite data showing the UK economy shrank in the second quarter and shares in Royal Dutch Shell fell after a mixed update.
Sentiment was cautious at the start of the week amid uncertainty over US-China trade relations, though an improvement in Chinese manufacturing conditions allowed stocks in mainland Europe to post some modest gains, with US futures also pointed to an upbeat open.
The FTSE 100 index was down 17.44 points, or 0.2%, at 7,408.77 on Monday at midday. The FTSE 250 was down 52.01 points, or 0.4%, at 19,918.94. The AIM All-Share was down 0.2% at 871.05.
The Cboe UK 100 index was down 0.2% at 12,571.25. The Cboe UK 250 was down 0.1% at 17,825.50 and the Cboe UK Small Companies up 0.3% at 10,938.39.
"FTSE 100 volatility appears to be lacking today, as consolidation in both stocks and the pound point towards a high degree of uncertainty for what lies ahead. Both US-China and Brexit issues remain in the balance, with arguments for both optimism and pessimism driving a lack of direction," said Joshua Mahony, senior market analyst at IG.
"Friday's US-led selloff had roots in the continued friction between the two sides, and with claims that the US could ban Chinese listings on the US stock markets, we are once again seeing tones that lower expectations of any impending breakthrough," he added. "However, any downside over souring relations between the US and China have been lessened after a signal that [China's] manufacturing sector is beginning to recover after a drawn-out decline."
In the US on Monday, however, the Dow Jones and S&P 500 are both pointed higher while the Nasdaq is set to gain 0.4%.
There were gains in mainland Europe in early afternoon trade, with the CAC 40 in Paris up 0.3% and the DAX 30 in Frankfurt up 0.1%.
Chinese manufacturers saw a modest improvement in conditions in September, with production and total new orders expanding.
The seasonally adjusted purchasing managers' index rose to 51.5 in September from 50.4 in August. Despite the only "modest" improvement, it still marks the highest reading since February 2018, according to Caixin data. Any reading above 50 represents expansion as opposed to contraction in the sector.
Meanwhile, in the UK, gross domestic product contracted sequentially in the second quarter of 2019.
The UK economic shrunk 0.2% in the three months to June on the quarter before, in line with the previous estimate, as well as with market consensus according to FXStreet. In the second quarter, production fell by 1.8% quarter-on-quarter, the steepest fall since 2012. This was driven by a 2.8% fall in manufacturing output.
Despite increasing by just 0.1% in the quarter, marking the weakest quarterly figure in three years, the services sector continued to provide the main positive contribution to overall GDP growth in the second quarter of 2019.
"While this is clearly not a positive release, it has had minimal impact in the markets, due in part to the lagging nature of the data and also thanks to more recent indicators pointing at a recovery in Q3," said David Cheetham at XTB.
The pound was quoted at USD1.2309 at midday, flat on USD1.2310 late Friday.
Elsewhere, the eurozone unemployment rate edged down in August, data from Eurostat showed on Monday.
The unemployment rate was 7.4% in August, down from 7.5% in July and significantly improved on 8.0% in August 2018. The latest reading was the lowest rate recorded in the euro area since May 2008, Eurostat highlighted.
Still to come in the economic calendar on Monday, there is German inflation at 1300 BST.
At the bottom of the FTSE 100 was Premier Inn-owner Whitbread, down 4.7% after Barclays cut the stock to Equal Weight from Overweight.
Royal Dutch Shell 'A' shares were down 1.1% and 'B' shares down 0.9% despite saying it expects to see a "strong trading and optimisation performance" for the third quarter.
In the Upstream oil division, production is expected to be between 2.6 million and 2.65 million barrels of oil per day. Shell said that during the third quarter there has been additional oil-well write-offs in the range of USD250 million to USD350 million, when compared to the third quarter of 2018 - for which no cash impact is expected.
On the corporate front, Shell said third quarter earnings - excluding identified items - are expected to include a net charge of between USD700 to USD850 million. The figure excludes the hit of currency exchange rate effects.
Berenberg described the update as "mixed" but said the better outlook for Integrated Gas and positive volumes in Downstream should be a "marginal positive" for the quarter.
Packaging firm DS Smith was up 1.7% after the UK Competition & Markets Authority said it would not refer the buyout of its flexible plastic packaging division by Liqui-Box Inc to a Phase Two investigation.
The GBP450 million takeover deal was first announced in March, and in May the UK monopoly regulator said it would probe the proposed acquisition. In late July, Liqui-Box offered undertakings to the CMA, following which the regulator said there were "reasonable grounds" for the undertakings to remedy the lessening of competition to be accepted.
The undertakings proposed by Liqui-Box comprised the divestment of its Bag-in-Box business, which includes manufacturing and assembly equipment at its Wythenshawe facility in Manchester, and a list of Liqui-box's UK BiB customers to be transferred to the buyer.
In the FTSE 250, HomeServe was up 2.2% after RBC raised the emergency home repairs business to Outperform from Sector Perform.
By Lucy Heming; lucyheming@alliancenews.com
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