LONDON MARKET MIDDAY: Rally Halts As US-China Trade Optimism Fades

(Alliance News) - Stocks in London were lower midday on Friday, giving back some recent gains as investors continue to be frustrated by the lack of concrete progress in the ongoing US-China trade negotiations.

The FTSE 100 was 17.25 points, or 0.2%, lower at 7,389.34 midday Friday. The blue chip index is 1.2% higher, however, from Monday morning.

The FTSE 250 was down 26.91 points, or 0.1%, at 20,406.60, and the AIM All-Share was down 0.1% at 893.43.

The Cboe UK 100 index was down 0.1% at 12,527.12. The Cboe UK 250 was up 0.1% at 18,315.27 and the Cboe UK Small Companies was down 0.1% at 11,259.73.

In European equities, the CAC 40 index in Paris and the DAX 30 in Frankfurt were both 0.1% lower in midday trade.

"It's been a more cautious open for European equity markets as we come to the end of what is largely positive week," said CMC Markets chief market analyst Michael Hewson. "Investors appear to be coming to the conclusion that we could be seeing the start of a thaw in US, China trade relations, if this week's price action in equity and bond markets is any guide."

He continued: "A sharp rise in bond yields, as bonds sell off, and further record highs for US markets along with the fifth successive week of gains for equity markets here in Europe, appears to have prompted optimism that we could well see the suspension of tariffs in December, as well as the prospect of a rollback of existing tariffs by year end. Gold prices have also fallen sharply reflecting this renewed optimism with the yellow metal on course for its worst weekly decline in over 2 years."

"A note of caution, needs to be exercised here, as we have been here before, only to find that both sides have stepped back due to concerns that they may be perceived as having given too much away," Hewson added.

Wall Street is pointed towards a muted open following Thursday's decent gains. All three indices are pointed towards opening in the red, with the S&P 500 and the Nasdaq Composite both set to open down 0.1%, with the down Dow Jones Industrial Average seen slightly lower.

On Thursday the Dow Jones Industrial Average ended up 0.7%, the S&P 500 advanced 0.3% and Nasdaq Composite gained 0.3%.

In London, miners were also giving back recent gains after enjoying a bounce on the hopes a trade deal was nearing between the two world's largest economies, with Fresnillo down 2.9%, Anglo American 2.2% and Rio Tinto 1.5%. Steel maker Evraz was 2.7% lower.

Early Friday, China reported its foreign trade continued to fall in October compared to the same period last year, according to official data, as the trade war with the US weighs on the giant Asian economy.

Exports dropped 0.9% from last October to USD212.9 billion, while imports plunged 6.4% to USD170.1 billion, according to customs data released on Friday. The declines were, however, smaller than analysts had expected.

China's foreign trade with the US dropped 15.8% year-on-year in October.

Back in London, Intertek was 1.6% lower after HSBC cut the stock to Reduce from Hold.

At the other end of the blue chip index, Hiscox was regained some of Thursday's sharp losses after having to clarify its medium term outlook. The insurer was 1.7% higher at midday, after losing 9.7% on Thursday.

On Monday, Hiscox said it expects a combined ratio of between 97% and 99% for its Retail unit in 2019. Hiscox reported a group combined operating ratio of 94.9% in 2018. Any combined ratio below 100% means an insurer made a profit from its underwriting.

The insurer added, that over the medium term, it is targeting a group combined ratio of between 90% and 95%.

Then on Thursday, Hiscox clarified it expects a ratio between 97% to 99% in 2019, a ratio between 96% to 98% in 2020, between 95% to 97% in 2021 and between 90% to 95% in 2022.

Stockbroker Jefferies said the outlook Hiscox offered is "far larger" than the broker originally understood and the Bermuda-based insurer is preparing for a "casualty catastrophe".

In the midcaps, Games Workshop was by the best performer, up 16%, after the wargames manufacturer and retailer guided for a solid increase in profit and revenue for the first half of its financial year.

Games Workshop said its trading to November 3 has remained robust since its last update on September 18, with sales and profit ahead of the same period the year before. Royalties receivable are also significantly ahead of the prior year, driven by the timing of guarantee income on the signing of new licences.

As a result, for the six months ending December 2, Games Workshop expects pretax profit to be no less than GBP55 million, and sales to be at least GBP140 million. At the very least, this reflects a 34% rise from GBP40.8 million pretax profit, and 11% from GBP125.2 million in revenue the year before.

Joining Games Workshop at the top of the FTSE 250 was Lloyd's insurer Beazley, up 8.6%. The company posted a 12% increase in year-to-date gross premiums due to double-digit premium growth across its business, driven by organic growth and rate rises across several business lines.

For the nine months to September 30, Beazley recorded gross premiums of USD2.19 billion versus USD1.99 billion a year before. Year-to-date investment return stood at 4.0% versus 0.5%.

The company, however, also warned that increased storm insurance claims will hit its 2019 combined ratio, a key profitability measure for insurers.

London-headquartered Beazley expects a combined ratio of between 100% and 102% for 2019, assuming normalised claims levels for the remainder of the year. In 2018, the company's combined ratio was 98%.

Dunelm and Tate & Lyle were on the rise following a pair of broker upgrades. UBS raised Dunelm to Buy from Neutral, sending the stock 3.4% higher. Kepler Cheuvreux upped Tate & Lyle to Hold from Reduce, sending the company 3.4% higher at midday.

IMI was heading in the opposite direction after Morgan Stanley cut the firm to Equal-weight from Overweight.

The pound was quoted at USD1.2796 midday on Friday, sharply lower compared to USD1.2823 late Thursday. Sterling was continuing its struggles from Thursday after it was revealed that Michael Saunders plus Jonathan Haskel both voted to cut interest rates by 0.25%, while the rest of the monetary policy committee voted to keep rates on hold at 0.75%.

The nine-strong Monetary Policy Committee voted 7-2 to maintain Bank Rate at 0.75%, while voting unanimously to keep the stock of sterling non-financial investment-grade bond purchases at GBP10 billion and the stock of UK government bond purchases at GBP435 billion.

The two members preferred a 25 basis point cut to Bank Rate at the meeting, judging that some extra stimulus was needed to ensure a sustained return of inflation to target.

By Paul McGowan; paulmcgowan@alliancenews.com

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