London close: Stocks drop despite pressure on pound, global trade in focus

London stocks finished firmly in the red on Monday, despite continuing weakness in Sterling, with miners under pressure and investors increasingly nervous about escalating trade tensions.

The FTSE 100 ended down by 1.17% or 89.08 points to 7,547.85, alongside a 0.55% drop for the pound to 1.31358 against America's currency, although versus the euro it was changing hands at 1.1312 and was stronger by 0.08%.

Weighing on the pound was a report in The Times according to which the Prime Minister's lead Brexit negotiator, Oliver Robbins, had briefed secretaries of state ahead of Friday's talks at Chequers, telling them they needed to be "realistic" about what could be achieved.

Linked to the above, according to consultancy Deloitte's July survey of British finance directors, 75% of them are now "pessmistic" about Brexit, up from 85% in the first quarter.

Worries about a trade war escalated after US President Trump said over the weekend that the European Union was "as bad as China" when it comes to trade.

Asked whether it would be better to join forces with Washington’s European allies to try to change China’s trade practices in an interview with Fox News, Trump said: "No... they treat us badly, they treat us very unfairly."

"The EU is possibly as bad as China, just smaller. It is terrible what they do to us," he said.

Trump made his comments before a 6 July headline for the US to impose tarriffs on $34bn-worth of Chinese goods. Ahead of that decision, overnight the Chinese currency, the yuan, and the country's stocks registered further large drops.

Spreadex analyst Connor Campbell said: "This has sent the President’s previous threat of tariffs on EU car imports back to the top of investors’ ‘To Fear’ lists."

According to reports, the European Commission has warned the US Department of Commerce that it could retaliate with tariffs on up to $300bn of US products if Washington presses ahead with tariffs on EU vehicles.

As trade concerns took centre stage yet again, UK data showing a slightly better-than-expected but still subdued performance from the manufacturing sector came and went with little fuss.

The IHS Markit/CIPS manufacturing purchasing managers’ index rose to 54.4 from a downwardly-revised 54.3 in May, a touch ahead of consensus expectations for a reading of 54.0. May’s figure was revised down from 54.4.

The survey also found that business optimism dropped to a seven-month low this month amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty.

Rob Dobson, director at IHS Markit, said: "The UK manufacturing sector ended the second quarter on a subdued footing. The turnaround in performance since the start the year has been remarkable, with impressive growth rates late last year turning into some of the weakest rates of expansion seen over the past two years in recent months.

Mining stocks were the worst performers on Monday, with Anglo American, Glencore, BHP Billiton and Antofagasta all lower after data showed that growth in China's manufacturing sector slowed in June. The Caixin-Markit China manufacturing purchasing managers' index nudged down to 51 this month from 51.1 in May, in line with expectations.

In corporate news, Tesco slipped even as it agreed to form an alliance with French supermarket peer Carrefour to group their buying power together to squeeze prices even lower. Initially agreed as a three-year partnership, the alliance will cover the "strategic relationship" with global suppliers, the joint purchasing of own brand products and goods not for resale.

Shares in many of Tesco suppliers' fell after the announcement, with McBride down 2%, Bakkavor and Hilton Food down 0.8%, Unilever down 0.7% and Cranswick down 0.5%. Dairy Crest was up 1% however, Premier up 0.6% and Greencore up 0.5%.

Housebuilder Barratt Developments was under the cosh as Morgan Stanley cut its price target on the overweight-rated stock to 620p from 685p.

AstraZeneca fell despite announcing that it has received rapid regulatory approval for new uses of two of its important cancer drugs in Japan, while gambling software and development company Playtech was sharply lower after a profit warning.

Micro Focus bucked the trend after agreeing to sell its SUSE software business to Blitz 18-679, a subsidiary of Swedish private equity group EQT, for $2.5bn in cash.

Engineer Meggitt was in the green after upping its revenue guidance for the year following a stronger-than-expected second quarter and announcing a divisional restructure.

Vedanta surged after the company’s directors indicated that they would be prepared to recommend a possible £778m all-cash takeover offer from founder Anil Agarwal, which comes amid a share slump after several protestors were killed by police at protests against the expansion of the company's Tuticorin copper smelter in India.

In broker note action, Premier Inn and Costa owner Whitbread was upgraded to ‘market perform’ at Bernstein.

Market Movers

FTSE 100 (UKX) 7,547.85 -1.17%
FTSE 250 (MCX) 20,605.86 -1.08%
techMARK (TASX) 3,494.96 -0.77%

FTSE 100 - Risers

Micro Focus International (MCRO) 1,343.50p 1.51%
Ocado Group (OCDO) 1,042.00p 1.41%
Reckitt Benckiser Group (RB.) 6,322.00p 1.33%
Marks & Spencer Group (MKS) 298.50p 1.15%
Centrica (CNA) 158.80p 0.73%
Old Mutual Limited NPV (DI) (OMU) 151.20p 0.53%
Informa (INF) 839.00p 0.48%
National Grid (NG.) 841.80p 0.41%
SSE (SSE) 1,358.50p 0.26%
Sky (SKY) 1,464.00p 0.17%

FTSE 100 - Fallers

Smith & Nephew (SN.) 1,341.50p -4.04%
NMC Health (NMC) 3,450.00p -3.69%
Glencore (GLEN) 349.30p -3.51%
Antofagasta (ANTO) 957.00p -3.33%
Evraz (EVR) 491.80p -3.27%
Rio Tinto (RIO) 4,065.50p -3.23%
BHP Billiton (BLT) 1,653.20p -3.09%
Barratt Developments (BDEV) 499.70p -3.05%
Anglo American (AAL) 1,644.00p -3.00%
Ashtead Group (AHT) 2,206.00p -2.95%

FTSE 250 - Risers

Vedanta Resources (VED) 818.00p 26.47%
Meggitt (MGGT) 524.20p 6.26%
Stagecoach Group (SGC) 149.50p 5.58%
Virgin Money Holdings (UK) (VM.) 382.90p 4.36%
TI Fluid Systems (TIFS) 258.00p 4.03%
Superdry (SDRY) 1,163.00p 3.65%
CYBG (CYBG) 327.20p 3.02%
Stobart Group Ltd. (STOB) 236.00p 2.61%
On The Beach Group (OTB) 515.00p 2.59%
IP Group (IPO) 130.00p 2.52%

FTSE 250 - Fallers

Playtech (PTEC) 556.40p -26.11%
Premier Oil (PMO) 118.80p -7.69%
Equiniti Group (EQN) 232.00p -6.07%
Serco Group (SRP) 93.05p -5.96%
Hochschild Mining (HOC) 181.00p -4.99%
Hikma Pharmaceuticals (HIK) 1,430.50p -4.70%
Tullow Oil (TLW) 235.40p -3.92%
Babcock International Group (BAB) 788.80p -3.86%
Caledonia Investments (CLDN) 2,755.00p -3.74%
Telecom Plus (TEP) 1,086.00p -3.55%