(Alliance News) - Stock prices in London were in the red on Thursday morning as the ongoing US-China saga turned soured after US lawmakers backed a bill supporting Hong Kong civil rights.
The vote by the US Senate came as investors were already growing nervous about the lack of news of progress on negotiations for a mini tariffs pact between the US and China.
The FTSE 100 index of London large-cap stocks was 49.78 points lower, or 0.7%, at 7,212.71 on Thursday morning. The mid-cap FTSE 250 was 188.76 points down, or 0.9%, at 20,286.49, but the AIM All-Share was 0.3% higher at 902.16.
The Cboe UK 100 index was 0.7% lower at 12,215.09. The Cboe UK 250 was 1.0% lower at 18,219.76, as the Cboe UK Small Companies was flat at 11,318.65.
In European equities, the CAC 40 index in Paris was down 0.6% and the DAX 30 in Frankfurt also 0.6% lower.
"The shadow boxing between China and the US has continued this week over when any phase one US, China trade deal may get signed. Despite the cautious optimism of China’s lead negotiator Liu He it is becoming, for all investors optimism, unlikely that any phase one China trade deal could be signed by the end of this year," said CMC Markets' Michael Hewson.
Trump declined to answer questions from reporters about whether he would sign the Hong Kong bill. Only one lawmaker in both houses of Congress voted against the bills, ensuring the legislation has a veto-proof majority.
China has vowed to take "countermeasures" if the proposal becomes law. The Chinese Foreign Ministry summoned a top US diplomat in Beijing after the Senate approved the bills earlier this week.
The Hong Kong Human Rights & Democracy Act requires sanctions against Chinese officials who are deemed to be violating freedoms and committing serious human rights abuses in the city.
It also requires a review of Hong Kong's autonomy from China, to determine whether the city should benefit from a special trading status with the US.
Wall Street ended in the red on Wednesday, with the Dow Jones Industrial Average and the S&P 500 both closing 0.4% lower, while the Nasdaq Composite lost 0.5%.
The Japanese Nikkei 225 index closed 0.5% lower on Thursday. In China, the Shanghai Composite closed down 0.3%, while the Hang Seng index in Hong Kong was down 1.5% in late trade.
AxiTrader analyst Stephen Innes added: "In the bigger picture, the details of this bill are relatively tame - sanctions against human rights violations isn't new. Also, as we saw with Huawei, the US and China have, in the past, been able to compartmentalize issues from the broader phase one trade negotiations.
"Of course, Hong Kong is exponentially more significant than Huawei. Still, China also must be down to earth, realizing that fighting back against this US populist movement, they could lose badly in the global court of public opinion. I'm not suggesting it's a storm in a teapot, but the market has taken this news well in stride. After all, the HK bill shouldn't come as a surprise."
The pound was quoted at USD1.2929 early Thursday, up from USD1.2909 at the close Wednesday.
On the London Stock Exchange, Centrica was one of the lone bright spots in the FTSE 100, up 6.1%.
The British Gas owner said its performance in the second half has been "solid" and has kept its full year targets unchanged.
The company has seen growth in total customer accounts, higher margins and returns in business energy supply in North America, strong trading and optimisation performance in Europe, and acceleration of cost efficiency delivery.
Adding: "These have offset the impact of further extensions to outages at the non-operated Dungeness B and Hunterston B nuclear power stations. The company has also experienced lower near-term European wholesale gas prices, although 2019 Exploration & Production earnings are largely protected by forward hedging."
Looking ahead, Centrica expects its adjusted earnings to be weighted towards the second half, with adjusted operating cash flow guided to be in the lower half of the GBP1.8 billion to GBP2.0 billion range. Year end net debt is guided between GBP3.0 billion and GBP3.5 billion.
Centrica now expects capital investment of about GBP800 million, down GBP100 million compared to guidance offered in its interim results. The company also expects in-year efficiency savings of about GBP300 million, GBP50 million higher than previous guidance.
David Barclay, senior investment manager at Brewin Dolphin, commented: "It has been a tough 2019 for Centrica and the company's results earlier this year underlined the challenges it faces on a number of fronts. Today's update suggests a level of stability – performance is in line with, albeit reduced, expectations. The hope will be that Centrica can use this is a platform for growth in the months and years ahead, becoming a stronger, simpler, and more competitive business."
At the other end of the FTSE 100, Johnson Matthey was down 5.4%, the worst large-cap performer, after the speciality chemicals firm saw its interim profit slip due to manufacturing inefficiencies in its Clean Air business.
In the half year to September 30, Johnson Matthey's pretax profit fell 8% to GBP225 million from GBP244 million the year before.
Revenue jumped 37% to GBP6.82 billion from GBP4.97 billion. The company said this was driven by "good" sales growth and higher precious metals prices. Sales, excluding precious metals, were up 3% year on year to GBP2.12 billion.
Looking to the second half, Johnson Matthey said it expects a "stronger" set of results compared to the first half, primarily driven by the absence of the one-off costs and seasonality in its Efficient Natural Resources unit. For the full year, the company expects to deliver group operating performance in line with market expectations.
Among London mid-caps, letter and parcel carrier Royal Mail was the worst performer, shedding 13%, on a worrying outlook. The firm did note, however, that its profit in the first half was in line with expectations despite "considerable" economic and political uncertainty in the UK.
In the 26 weeks to September 29, Royal Mail recorded pretax profit of GBP173 million compared to GBP33 million in the 26 weeks to September 23 the year before.
Revenue was up 5.1% to GBP5.17 billion, with Royal Mail saying UK parcel growth more than offset the decline in UK letters. The company also noted its UK revenue performance was the best in five years.
Royal Mail lowered its dividend, however, to 7.5p from 8.0p the year before.
Looking ahead, the company said it expects to see adjusted operating profit between GBP300 million and GBP340 million for the full year. In the first half, the company recorded GBP165 million adjusted operating profit.
Royal Mail said its transformation is "behind schedule" but is committed to investing GBP1.8 billion into the firm. The company said its second half performance should benefit from the UK general election - due to political flyer postings - but its outlook, especially for letters, remains "challenging".
Chief Executive Rico Back added: "People are posting fewer letters and receiving more parcels. We have to adapt to that change. The challenging financial outlook in the UK means now, more than ever before, we need to make the changes required - and accelerate them - to ensure a successful UK business."
Rotork was was down 7.8% after saying its sales will be lower in 2019. The company, which manufactures electric, pneumatic and hydraulic valves, said a "slightly greater than usual" proportion of recent orders will not be delivered until next year.
"We therefore now expect to deliver modestly lower organic constant currency sales year-on-year in 2019, reflecting order phasing, portfolio and product rationalisation, and the impact on the prior year from delivery of several significant projects and sales to countries subsequently placed under sanction," Rotork explained.
Investec was trading down 2.8% early in the session. The Anglo-South African bank reported a fall in income and profit fall but held its payout, as it progresses with the demerger of its asset management business.
In the financial year ended September 30, total operating income, from both its South African and UK firms, declined 1.8% to GBP1.24 billion from GBP1.29 billion last year.
Pretax profit fell 10% to GBP349.2 million from GBP388.3 million. Weighing on profit were costs related to the closure and rundown of its Hong Kong direct investments business. These surged 84% to GBP49.5 million from GBP26.9 million last year.
Investec which, is listed in both London and Johannesburg, will pay a dividend of 11.0 pence per share, flat year-on-year.
Also heading in the wrong direction was Senior and Hays, down 5.5% and 2.5%, respectively, due to broker downgrades.
Peel Hunt cut Senior to Hold from Buy and HSBC cut Hays to Hold from Buy.
Ahead, in Thursday's relatively quiet economic events calendar, UK public sector borrowing figures are at 0930 GMT.
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2019 Alliance News Limited. All Rights Reserved.
Investec (INVP)
Senior (SNR)
Hays (HAS)
Johnson Matthey (JMAT)
Centrica (CNA)
Rotork (ROR)