LONDON MARKET MIDDAY: Market Indecisive Amid Faint US-China Talk Hopes

(Alliance News) - The London equities market tipped into the red at midday on Thursday as investors remained on the sidelines ahead of the latest round of US-China talks, where expectations are low that a breakthrough will be made.

The FTSE 100 stock index was just 0.29 of a point lower at 7,166.21 at Thursday midday, but the FTSE 250 was down 52.02 points, or 0.3%, at 19,119.58 and the AIM All-Share was down 0.2% at 854.56.

The Cboe UK 100 index was flat at 12,155.11. The Cboe UK 250 was 0.3% lower at 17,040.51 and the Cboe UK Small Companies up 0.1% at 10795.86.

In mainland Europe, the CAC 40 in Paris and DAX 30 in Frankfurt were up 0.5% and 0.2% respectively in early afternoon trade.

"Markets continue to be buffeted by trade war stories, as the US and China prepare for more talks today. It was going to be a week of headlines, and it is far from over yet," said Chris Beauchamp, chief market analyst at IG.

"Expectations of any progress remain low, which at least provides the potential for a pleasant surprise, and reports that the US is considering a currency pact as part of a stage one deal have helped to restore some optimism," he added.

The Chinese delegation headed by Vice Premier Liu He will meet with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Thursday in a renewed attempt to end a trade war that has threatened global economic growth.

Recent US decisions have damped hopes that these talks will lead to a positive outcome, however. These include Washington's decision to place visa restrictions on Chinese officials over accusations of human rights violations against minority Muslim Uighurs and to blacklist 28 Chinese organizations that the US says pose a risk to national security.

Bloomberg on Thursday reported the White House is looking at a currency pact with China which could see a tariff increase next week suspended.

With the market mood jittery, Wall Street is pointed lower. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all were pointed down 0.1%.

While trade talks are in focus on Thursday, attention also will be paid to US inflation figures for September, due at 1330 BST ahead of a Federal Reserve meeting at the end of the month. Before the CPI release, at 1230 BST, accounts from the European Central Bank's September meeting are due.

"Reports this morning that ECB President Mario Draghi ignored in-house advice that he should not restart the bond-buying program merely serve to highlight the growing divisions at the heart of the governing council, and while Bank of Finland Governor Ollie Rehn sought to play down the story of splits in the governing council, today's publication of the ECB minutes may tell a different story," commented Michael Hewson at CMC Markets.

Already released in the UK, data showed the economy contracted in August, but growth on a three-month basis picked up.

UK gross domestic product grew 0.3% sequentially in the three months to August, the ONS said, helped as the services sector grew 0.4% and the construction sector by 0.1%, though these gains were offset by production slipping 0.4%. In the May to July period, growth was just 0.1%.

In August alone, however, the UK economy contracted by 0.1% month-on-month. Consensus, according to FXStreet, was for a flat reading after 0.4% growth in July.

Though GDP contracted in August, the bigger pictures "doesn't appear quite so bad", said David Cheetham at XTB.

"The August decline in [month-on-month] terms can be explained away by an upwards revision to an already strong July reading and a rolling 3-month average showed an increase of 0.3%. Following the contraction seen in the second quarter this means that another negative reading for Q3 is not at all likely, although growth remains tepid at best," observed Cheetham.

He added, though: "While economic data shouldn't be dismissed entirely it is very much of secondary importance to the markets at present with Brexit uncertainty continuing to loom large overhead."

On Thursday, UK Prime Minister Boris Johnson is to meet Leo Varadkar for last-ditch Brexit talks in a bid to break the deadlock as the departure deadline looms and progress with the EU falters.

Johnson will hope to see concessions on the issue of the Irish backstop, the contingency measure to prevent a hard border on the island which has proved a persistent sticking point. But with the crucial EU summit in Brussels starting in a week, the chance of the PM securing a new Withdrawal Agreement is looking increasingly unlikely.

On Wednesday, EU chief negotiator Michel Barnier said there was still no basis for a fresh agreement on the UK's withdrawal from the the bloc. He said they had yet to see any "operational, legally binding solution" to the issue of the backstop ahead of next week's European Council meeting.

The EU summit - the last one before the UK's scheduled departure date at the end of the month - is being held on October 17 and 18. Johnson must bring back a deal before October 19 if he is to avoid a clash over the Benn Act, which aims to prevent a no-deal departure.

In London, Hargreaves Lansdown was 3.3% lower despite reporting a "solid start" to its new financial year with growth in first quarter revenue and net new business.

The fund supermarket reported net new business of GBP1.7 billion for the three months to September 30, up from GBP1.3 billion in the year-ago period, with net new clients of 35,000. Positive stock market movements added GBP800 million to assets under administration, versus GBP1.2 billion a year ago.

Packaging firm Mondi was down 2.4% after posting a fall in third quarter earnings.

For the three months to the end of September, underlying earnings before interest, taxes, depreciation and amortisation dropped 18% to EUR383 million from EUR466 million the year before. Underlying Ebitda was hit by a EUR40 million hit coming from planned mill maintenance shuts during the quarter.

In addition, lower average selling prices in the period compared to the highs at the end of 2018, as well as the expected lower gain on forestry fair value, more than offset the fruits of Mondi's product improvement initiatives.

Barratt Developments was 5.7% lower as the stock went ex-dividend, meaning new buyers no longer qualify for the housebuilder's latest payout.

At the bottom of the FTSE 250 was Dunelm, losing 7.0% as it commented on softer September trading conditions.

Revenue in the 13 weeks to September 28 rose 5.8% to GBP262.6 million from GBP248.2 million last year. Not including GBP4.0 million in sales from Worldstores.co.uk and Kiddicare.com - websites that closed in the first quarter last year - revenue grew by 7.5% from GBP244.2 million.

The homewares retailer reported like-for-like sales growth of 6.4% year-on-year to GBP255.6 million from GBP240.2 million.

The beginning of the quarter was particularly strong, Dunelm said, reflecting continued market share gains and a weak comparative period last year. In September, however, trading was mixed amid a softer homewares market.

There was other positive news in the retailing sector on Thursday, as shares in N Brown rose 8.8% on a swing to profit.

In the 26 weeks to August 31, N Brown reported a year-on-year revenue decrease of 5.4% to GBP432.9 million from GBP457.8 million. However, the retailer swung to a pretax profit of GBP18.8 million from a GBP27.1 million loss a year before, with exceptional items being trimmed by 62% to GBP25.0 million from GBP65.4 million.

By Lucy Heming; lucyheming@alliancenews.com

London Midday is available to subscribers as an email newsletter. Contact info@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.