LONDON MARKET MIDDAY: FTSE 100 Tumbles 1% On Fresh US-China Antagonism

(Alliance News) - Renewed US-China trade concerns, along with a slide in the share price of oil major Royal Dutch Shell, pushed the FTSE 100 index further into the red as Thursday's session progressed.

The London large-cap index was 71.44 points lower, or 1.0%, at 7,259.34 Thursday at midday. The mid-cap FTSE 250 was down 41.24 points, or 0.2%, at 20,073.86, and the AIM All-Share was flat at 889.46.

The Cboe UK 100 index was down 1.0% at 12,307.62. The Cboe UK 250 was down 0.2% at 18,014.38 and the Cboe UK Small Companies was down 0.2% at 11,208.59.

"There's been a broad risk-off move seen in the markets this morning after the latest comments from Beijing suggested that investors may be getting a little bit ahead of themselves in assuming a smooth de-escalation in trade tensions between the world's two largest economies," said David Cheetham at XTB.

"It is worth noting that market sentiment had gotten very upbeat on trade in recent months despite only a little tangible progress and those who were extrapolating the recent events into a long-term deal may now start to question that hypothesis," he commented.

In a further sign of the strained tensions between the two, even as they look to sign phase one of a trade deal in the coming weeks, Beijing slammed US Secretary of State Mike Pompeo on Thursday for a speech it said had "viciously attacked" China.

In the latest hawkish take on China by President Donald Trump's administration, Pompeo Wednesday called Beijing "truly hostile" to the US, and vowed to ramp up pressure on China on multiple fronts.

In response Beijing rounded on his comments Thursday, which it said revealed "arrogance and fear".

"This deliberate distortion of the facts and slandering of China's domestic and foreign policies fully exposes the deep political bias and anti-communist mindset of a small number of US politicians," said foreign ministry spokesman Geng Shuang at a press briefing.

"Pompeo's speech viciously attacked the Chinese Communist Party and the Chinese government," added Geng.

Ahead of the Wall Street open on Thursday, stocks are pointed to a downbeat start with the Dow Jones Industrial Average and S&P 500 pointed 0.3% lower, while the Nasdaq Composite is seen off 0.2%.

In London, the FTSE 100 was hampered as index heavyweight Royal Dutch Shell saw its shares slide after releasing its third quarter results.

Shell 'A' shares were down 3.6% and 'B' shares down 3.9% at midday as the oil major warned it may not be able to reduce debt as planned and keep on with its share buyback programme.

"Between them, BP and Shell have done a sterling job in holding back the FTSE 100 this week," commented Chris Beauchamp, chief market analyst at IG. "Yesterday's EIA [petroleum status report] figures hit oil prices, and today the oil giant's update revealed how low prices continue to hamper profitability. Plus, with the buyback now looking dicey, investors will be revising down expectations for share price performance in coming months."

Shell, London's largest listed company, kept its dividend for the third quarter at 47 US cents, the same as the prior quarter, and also announced a new USD2.75 billion buyback, as it looks to return USD25 billion to shareholders.

Chief Executive Ben van Beurden commented: "Our intention to buy back USD25 billion in shares and reduce net debt remains unchanged.

"The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe."

Shell's CCS earnings, its preferred profit metric, excluding items was USD4.92 billion for the third quarter, 15% lower year-on-year.

Peer BP on Tuesday saw its shares slide 3.8% as investors worried that the oil major may defer an increase to its dividend. BP shares were down 1.6% on Thursday.

Meanwhile, blue-chip miners were lower following disappointing factory data from China.

Glencore was down 2.5%, Antofagasta 2.1% lower and Anglo American off 1.6% at midday.

Chinese factory activity contracted for a sixth-straight month in October, data overnight showed, as the key manufacturing sector suffers under the weight of a slowing domestic economy and the long-running US trade war.

The figures are the latest to highlight a slowdown in the world's number two economy, which in the third quarter expanded at its slowest rate for nearly three decades.

The closely watched Purchasing Managers' Index, a key gauge of activity in the country's factories, fell to 49.3 last month, the National Bureau of Statistics said. This was well short of forecasts of 49.8 and also down from September's figure of the same amount. China's official PMI has fallen below the 50 mark that separates growth and contraction every month since April.

In other data on Thursday, inflation in the eurozone continued to slow in September, while the economy expanded at a stable rate in the third quarter of 2019.

Annual consumer price inflation in the eurozone was 0.7% in October, according to a flash estimate from Eurostat. This was down from 0.8% in September.

Excluding food, energy, alcohol & tobacco, so-called core inflation was 1.1%, accelerating from 1.0% in September. Core prices beat consensus, according to FXStreet, for a 1% rise. Headline inflation came in line with forecasts.

Meanwhile, the eurozone economy expanded by 0.2% in the third quarter of 2019 on a sequentially basis. Annually, gross domestic product growth was 1.1%.

In the second quarter, the 19 country-strong euro area had grown 0.2% quarter-on-quarter and 1.2% annually.

"The eurozone economy didn't slow further in Q3, which is already something to be relieved about in the current environment of uncertainty and poor monthly data," said ING economist Bert Colijn.

"Still, taking the 0.2% growth rate together with a sluggish start to Q4 according to poor survey data and slightly higher unemployment in September reveals an economy in need of positive news about the trade environment to keep from sliding further," he cautioned.

In European equities, the CAC 40 index in Paris was down 0.5% and the DAX 30 in Frankfurt 0.2% lower in early afternoon trade.

Back in London, and FTSE 250-listed housebuilder Crest Nicholson slid 7.4% after warning on its annual profit.

During the second half of 2019, the housebuilder said it has experienced "a volatile sales environment in some of its regional businesses, driven largely by ongoing customer uncertainty relating to Brexit and the economic outlook in the UK".

Following the appointment of new leadership and new Chief Executive Peter Truscott in September, the company reviewed its operations and now anticipates profit before tax for the twelve months to October to be in the range of GBP110 million to GBP120 million.

In financial 2019, Crest Nicholson reported pretax profit of GBP176.4 million.

Elsewhere on the stock exchange, Carpetright shares slumped 48% to 4.77 pence after the retailer received a heavily discounted takeover offer from an existing lender.

Meditor European Master Fund's potential cash offer would value Carpetright shares at 5.00p each, or GBP15.2 million in total, a 45% discount to its closing price of 9.12p on Wednesday.

Chair Bob Ivell said: "Shareholders will be aware that we have been engaged in comprehensive refinancing discussions to replace existing facilities which expire at the end of this calendar year. The possible offer being announced today would put in place a new financing structure for Carpetright which would enable us to continue our recovery and make necessary investments in improving our business."

Carpetright added that investment management firm Aberforth Partners, which has just shy of a 13% stake, has backed Meditor's potential takeover bid. The possible acquisition offer also is likely to get the support of Majedie Asset Management, property developer Countrywide Developments, and investment management fund Soros Fund Management.

By Lucy Heming; lucyheming@alliancenews.com

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