LONDON MARKET CLOSE: Stocks Down As US Senate Backs Hong Kong Bill

(Alliance News) - Stocks in London ended lower on Wednesday after Washington lawmakers passed a bill supporting Hong Kong civil rights.

The vote by the Senate came as investors were already growing nervous about the lack of solid news on negotiations for a mini tariffs pact to help resolve a debilitating and long-running standoff between US and China.

China was already angered and expressed "strong indignation" last month when the US House of Representatives passed a similar measure.

The Hong Kong Human Rights & Democracy Act, which must be signed off by President Donald Trump, supports "human rights and democracy" in Hong Kong and threatens to potentially revoke its special economic status as US lawmakers grow concerned about an increasingly tough crackdown on the months-long protests.

The bill would require the president to annually review the favourable trade status Washington grants to the city and allows for sanctions against Hong Kong and Chinese officials who commit human rights abuses including "extrajudicial rendition".

The FTSE 100 index closed down 61.31 points, or 0.8%, at 7,262.49. The FTSE 250 ended down 53.23 points, or 0.3%, at 20,475.25, but the AIM All-Share closed up 2.99 points, or 0.3% at 899.78.

The Cboe UK 100 index finished down 0.7% at 12,312.15. The Cboe UK 250 closed down 0.3% at 18,413.20 and the Cboe UK Small Companies ended up 0.4% at 11,317.29.

In Paris the CAC 40 index ended down 0.2%, while the DAX 30 in Frankfurt ended down 0.4%.

"Today has seen widespread pessimism throughout the global financial markets, with Asian and European stock market weakness being transmitted into the US open. Chief amongst the concerns for markets is the tiresome issue of US-China trade relations, with the Senate passing a controversial Hong Kong bill which will further strain US-China relations away from the negotiating table," said IG Group's Josh Mahony.

"In the latest twist of a seemingly never-ending saga, this latest bill passed in the Senate threatens to impose sanctions on Hong Kong in the event that human rights have been suppressed. While this bill requires approval at the House and from Trump himself, there is no doubt that the Chinese will see this as a threat to their sovereignty, in turn relinquishing some of the goodwill built up through recent months," Mahony added.

On the London Stock Exchange, Kingfisher ended the worst blue chip performer, down 7.1% after the DIY retailer warned its prospects remain gloomy following a "disappointing" third-quarter performance.

The weak performance, Kingfisher said, was due to continued disruption in bringing in new product ranges, lower promotional activity, weakness in France, as well as generally softer market conditions in the firm's core markets. In the UK, B&Q UK & Ireland delivered a 3.5% decline in revenue, with like-for-like down 3.4%. Screwfix increased revenue by 7.9%, and 3.7% like-for-like.

Kingfisher's French businesses, Castorama and Brico Depot, posted a 5.7% and 6.2% revenue decline respectively. Like-for-like, revenue was down 6.0% for Castorama and 6.1% for Brico Depot.

Looking to the full-year, Kingfisher sees softness and range disruption continuing in the UK, while in France, Castorama is set to underperform the market and Brico Depot will suffer from lower promotional activity.

Aviva closed down 3.5%. The insurer unveiled its new "simplification" strategy, saying it is going to begin operating with five divisions.

The "simplification" is expected to result in GBP300 million in net savings by 2022, Aviva said, with a GBP1.5 billion reduction of debt. Aviva said the overall strategy will allow it to "excel at fundamentals" and invest in sustainable growth. Over the next three years, Aviva is looking to invest GBP1.3 billion in the company. Additionally, Aviva is to sell its stake in Hong Kong business, called Blue, to co-investor Hillhouse Capital.

Turning to medium term financial targets, Aviva is guiding for a solvency II return on equity by 2022 of 12%. From 2019 to 2022, operating capital generation is expected to be GBP7.5 billion, with cash flows between GBP8.5 billion and GBP9.0 billion. For 2019, the insurer's operating profit is expected to be "broadly" in line with management expectations.

Sage Group closed down 3.0% after the accounting software provider reported mixed annual results which saw strong revenue growth, but a decline in profit.

Sage said for the financial year ended September 30, revenue was up 4.9% to GBP1.94 billion from GBP1.82 billion in financial 2018. Organic revenue growth was 5.6% to GBP1.8 billion from GBP1.7 billion, underpinned by software subscription revenue growth.

Pretax profit was GBP425.0 million, down 11% from GBP475.0 million in 2018. Underlying pretax profit was down 9% to GBP361.0 million, compared to GBP398.0 million in 2018.

In the FTSE 250, Mitchells & Butlers ended the best performer, up 5.5% after the restaurant and pub operator reported "strong" growth in financial 2019, with an increase in profit driven by a rise in sales.

In the 52 weeks to September 28, Mitchells & Butlers recorded GBP177 million in pretax profit, 36% higher than the GBP130 million reported the year before. Revenue grew 4.2% year on year to GBP2.24 billion from GBP2.15 billion, with total sales up 3.9%.

The pound was quoted at USD1.2909 at the London equities close, lower than USD1.2929 at the close Tuesday.

On the political front, UK Prime Minister Boris Johnson hinted more than two million low-paid workers could be lifted out of National Insurance under plans to be unveiled in the Conservative Party's election manifesto.

The PM appeared to let slip that the scheme to raise the threshold at which workers start paying National Insurance contributions from GBP8,628 a year to GBP12,000 during a campaign visit to Teesside.

The disclosure came as Tories came under fire for re-branding one of their official Twitter accounts as a fact-check service during Tuesday's TV debate between Johnson and Labour leader Jeremy Corbyn.

A snap YouGov poll following the debate suggested Johnson came out narrowly ahead - with 51% saying they thought he had won, against 49% for Corbyn.

However, on the issue of trust it was the Labour leader who came out on top, with 45% saying he was the more trustworthy, against 40% for the PM.

Analysts at FXPro told Alliance News: "The negative impact on British assets was intensified by growing uncertainty around the outcome of the December parliamentary vote. In just one day, the British markets moved beyond the comfort zone. According to a new poll Corbyn, the opposition party leader considered as the winner by 49%. High support for the opposition returns to the markets' worries on hung parliament.

"Nevertheless, the parties (at least in the UK) continue to move towards the approval of the deal. It is also worth remembering that the British FTSE 100 has not climbed so high in recent weeks. Therefore it is less vulnerable to prolonged correction. It is also worth remembering that the British pound has repeatedly successfully damped market drops on bad Brexit news."

The euro stood at USD1.1066 at the European equities close, lower than USD1.1080 late Tuesday.

Against the yen, the dollar was trading at JPY108.63, firm against JPY108.56 late Tuesday.

Stocks in New York were mostly lower at the London equities close after Trump on Tuesday threatened to raise tariffs on Chinese goods higher if no trade deal is struck.

The DJIA was down 0.2%, the S&P 500 index down 0.1% and the Nasdaq Composite was flat.

Ahead on Wednesday, the US Federal Reserve Open Market Committee meeting minutes will be released at 1900 GMT.

The US Federal Reserve cut interest rates for the third time in 2019 at its last meeting in October.

After the meeting, US Fed Chair Jerome Powell had in his post-rate statement, indicated that the FOMC was ready to pause action on rates until the effects of the last three rate cuts on the US economy were assessed.

Brent oil was quoted at USD62.30 a barrel at the London equities close, up from USD61.16 at the close Tuesday.

The latest inventory report from the US Energy Information Administration showed US oil and gasoline stockpiles grew by 1.37 million barrels and 1.75 million barrels respectively.

Gold was quoted at USD1,468.57 an ounce at the London equities close, lower than USD1,473.28 late Tuesday.

The economic events calendar on Thursday has UK public sector borrowing figures at 0930 GMT.

The UK corporate calendar on Thursday has interim results from speciality chemicals company Johnson Matthey, postal operator Royal Mail and Anglo-South African bank Investec. There are also third-quarter results from bookmaker William Hill.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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