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(Alliance News) - Stock prices in London opened sharply lower on Friday as investors fretted over US-China tensions and fears that a swift economic recovery for the world's largest economy is being reversed.
On the UK corporate front, shares in Centrica surged after announcing the sale of its North American business for a significant sum.
China 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 tit-for-tat move is a "legitimate and necessary response to the unreasonable measures by the US", the foreign ministry said in a statement.
US Secretary of State Mike Pompeo said Thursday that the Chinese consulate in Houston was a centre for espionage and operations to illegally obtain US companies' trade secrets.
In addition, The US Department of Labor on Thursday reported that 1.4 million people applied for jobless benefits last week, the first week-over-week increase in initial jobless claims since the early days of the coronavirus crisis this spring.
Meanwhile, Republicans have been struggling to come up with an economic stimulus bill to counter a USD3.5 trillion Democrat proposal, fanning concerns they will not pass a measure ahead of their August break.
The FTSE 100 index was down 111.30 points, or 1.3%, at 6,100.14. The mid-cap FTSE 250 index was 183.99 points, or 1.1%, lower at 17,303.09. The AIM All-Share index was down 6.39 points, 0.7%, at 884.11.
The Cboe UK 100 index was down 1.3% at 611.54. The Cboe 250 was down 0.1% at 14,819.54, and the Cboe Small Companies index was flat at 9,209.06.
In mainland Europe, the CAC 40 in Paris was down 1.6%, while the DAX 30 in Frankfurt was 1.8% lower.
On the London Stock Exchange, Ferguson was the best blue-chip performer, up 2.5% after the plumbing and heating products supplier said its performance had steadied in the fourth quarter, as lockdown measures eased.
In the UK recent revenue trends have been more encouraging as lockdown measures have been eased, the company said.
"Our actions to reduce the cost base will ensure that the business is better positioned for the medium-term economic environment. Ferguson has a strong balance sheet with good liquidity and the group remains well-positioned to deliver consistent outperformance," the company said.
At the other end of the large-cap index, M&G was the worst performer, down 3.5% after Barclays cut the fund manager to Underweight from Equal Weight.
Pearson was down 3.0% after the education publisher swung to a first-half loss as the Covid-19 crisis dealt a major blow to trading.
In the six months to June 30, sales decreased by 18% to GBP1.49 billion from GBP1.83 billion last year, with portfolio adjustments reducing sales by GBP53 million and currency movements increasing revenue by GBP25 million.
Pearson's first-half operating profit rose to GBP107 million from GBP37 million, the increase largely due to the gain on sale of Penguin Random House, it said.
The textbook publisher's first-half operating profit rose to GBP107 million from GBP37 million, the increase largely due to the gain on sale of Penguin Random House, it said. Pretax profit rose to GBP35 million from GBP13 million last year.
However, Pearson swung to an adjusted operating loss of GBP23 million from a GBP144 million profit a year ago.
Vodafone was 2.8% lower after the telecommunications firm said coronavirus crisis hurt organic service revenue growth in the first quarter, due to lower revenue from roaming and visitors, project delays and lower prepaid revenue in some smaller markets.
For the first quarter ended June 30, total revenue slipped 1.4% to EUR10.5 billion from EUR10.6 billion in the first quarter of financial 2020 and was down 2.8% on an organic basis. Service revenue rose 1.3% to EUR9.1 billion from EUR9.0 billion, though was down 1.3% on an organic basis.
Vodafone said it was on track to deliver at least EUR0.4 billion net operational expenditure reduction in Europe in financial 2021 and adjusted EBITDA outlook unchanged, remaining "flat to slightly down". It reiterated its guidance for full-year free cash flow of at least EUR5.0 billion.
"This remains a difficult time in the industry given the enormous drain on capital through ongoing spectrum and investment costs generally, while at the same time the ferocity of competition remains in a market where, from the consumer's standpoint, there is little differentiation other than cost," said Interactive Investor's Richard Hunter.
Vodafone also announced the creation of infrastructure company Vantage Towers to be listed in Frankfurt in 2021.
In the FTSE 250, Centrica was by far the best performer, up 23% after the British Gas parent company said it agreed to sell its North American energy supply, services and trading business, Direct Energy, to NRG Energy for USD3.6 billion in cash.
The 'Big Six' energy supplier said this represented a 7.9 times multiple of enterprise value to underlying adjusted earnings before interest, tax, depreciation and amortisation. Centrica said the disposal increases the long-term strength of its balance sheet with proceeds intended to be used to reduce net debt significantly and to make a contribution to the defined benefit pension schemes.
Centrica added it will focus on its core home markets of the UK and Ireland, where it has "leading market positions".
In China, the Shanghai Composite ended down 3.9%, while the Hang Seng index in Hong Kong is down 2.6%. Financial markets in Japan are closed again Friday for the Health & Sports Day holiday.
The pound was quoted at USD1.2731 early Friday, down from USD1.2752 at the London equities close Thursday.
UK retail sales were recovering in June as lockdown measures eased following the sharp falls experienced since the start of the coronavirus crisis, the Office for National Statistics said.
UK retail sales were down 1.6% in June on an annual basis, having decreased 13% in May. Market consensus, according to FXStreet, was for a 6.4% annual decline. On a monthly basis, UK retail sales were up 14% in June, having jumped 12% in May. The reading easily beat market consensus for an 8.0% rise.
"The data shows that as lockdown measures eased and non-essential shops opened in the middle of the month, consumers were ready to spend. This is a very encouraging reading and boosts optimism surrounding a V-shaped recovery. However, as the government withdraws its support from the labour market, retail sales could quickly fall away," said City Index analyst Fiona Cincotta.
On the political front, the UK and the EU broke up their latest round of post-Brexit talks by ruling out a quick deal but voicing hope for agreement in the coming months.
UK Prime Minister Boris Johnson had promised to add "a bit of oomph" to the stalled negotiations when he personally joined them last month. His main goal then was to get a framework deal struck by the end July that could assure UK businesses they would not have to start preparing for a messy no-deal breakup when the current transition period ends on December 31.
But chief negotiators said it was unlikely because of a fundamental gap on major areas such as fishing rights and fair competition rules.
The UK's Brexit negotiator David Frost accused the EU of failing to recognise Britain's economic and political independence and described the gulf between the sides on some points as "considerable".
Frost's counterpart Michel Barnier criticised London for refusing to move on its red lines.
The euro stood at USD1.1594, flat from USD1.1597. Against the yen, the dollar was trading at JPY106.45 in London, lower from JPY106.91.
Gold was quoted at USD1,895.02 an ounce, flat from USD1,894.10 late Thursday.
Brent oil was quoted at USD43.27 a barrel, down from USD44.02 at the London equities close Thursday.
Friday's economic calendar has services and manufacturing PMI readings from the eurozone, the UK and the US at 0900 BST, 0930 BST and 1445 BST respectively.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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