LONDON MARKET OPEN: FTSE 100 Slumps As US-China Flames Are Fanned

LONDON (Alliance News) - The arrest and planned extradition of a Chinese technology executive to ...

Alliance News 6 December, 2018 | 8:34AM
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LONDON (Alliance News) - The arrest and planned extradition of a Chinese technology executive to the US kept markets on the back foot early Thursday, with traders worried the issue could snap already fragile relations between the two countries.

The blue-chip FTSE 100 index fell 84.26 points, or 1.2%, to 6,837.58, trading around its lowest level in two years. The FTSE 250 was down 248.41 points, or 1.4%, at 18,022.69 and the AIM All-Share was 0.5% lower at 906.35.

The Cboe UK 100 was down 1.3% at 11,606.70, while the Cboe UK 250 was down 1.4% at 16,136.98. The Cboe UK Small Companies was down 0.1% at 11,303.85.

In mainland Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were down 1.3% and 1.2%, respectively.

"The latest bout of anxiety stems from the arrest and planned extradition from Canada to the US of the CFO of Chinese telecom giant Huawei, on allegations of breaching Iran sanctions and suspicions of cyber-espionage," said Michael van Dulken, head of research at Accendo Markets.

He added: "Having swung between optimism and scepticism about a US-China trade war truce through February, and we note Chinese diplomats making positive noise overnight, traders are understandably cautious."

Huawei Chief Financial Officer Meng Wanzhou was arrested in Vancouver, British Columbia, on Saturday, Justice Department spokesman Ian McLeod said. McLeod said a publication ban has been imposed in the case and he could not provide further details.

Huawei issued a statement saying Meng was changing flights in Canada when she was detained "on behalf of the US of America" to face "unspecified charges" in New York.

In Asia on Thursday, the Japanese Nikkei 225 index ended down 1.9%. In China, the Shanghai Composite closed down 1.7%, while the Hang Seng index in Hong Kong slumped 2.5%.

In London, DS Smith was down 2.7% despite posting a rise in revenue and profit for its first half.

Revenue from continuing operations for the six months to the end of October rose 15% to GBP3.07 billion, as pretax profit jumped 27% to GBP162 million. The paper and packaging company said it saw good organic volume growth in the half of 3.2%.

Irish broker Davy highlighted that DS Smith's operating profit of GBP304 million for the half was behind both consensus, which lay at GBP310 million, and the broker's own forecast of GBP317 million.

DS Smith said its outlook remains positive as it enters the second half with "good momentum".

"The recovery of paper price increases that has been ongoing over the past 12 - 18 months is now completed. Our short-paper business model is robust and designed to deliver good returns throughout the paper cycle," said DS Smith.

The FTSE 100 constituent raised its interim dividend by 14% to 5.2p.

Ted Baker was at the top of the FTSE 250, up 3.0%, after the fashion retailer said it produced a "resilient" performance in the sixteen weeks to December 1 despite tough trading conditions.

Revenue fell 0.2%, or 0.4% at constant currencies, in the period. This reflected an anticipated decline in wholesale sales due to the timing of deliveries, largely offset by its retail sales performance.

"In the UK, Europe and the east coast of America, trade was affected by the unseasonal weather at the start of the period and trading in the UK continues to be impacted by the well-publicised challenges facing some of our trading partners," said Ted Baker.

Total retail sales including e-commerce were up 2.3%, or 2.1% at constant currency, in the period. Total retail sales for the last eight weeks of the period grew 4.0% as the weather became more standard for the time of year.

The company also confirmed that it has appointed law firm Herbert Smith Freehills to conduct an independent external investigation, after Sky News reported of an "awkward hugging policy" at the company.

On Sunday, Sky News said that more than 60 people had come forward to launch an online petition, detailing alleged experiences with Ted Baker's founder & chief executive, Ray Kelvin. Ted Baker, in a statement to Sky News, said that it would make sure an independent investigation was carried out.

Bodycote was down 2.9% after UBS cut the heat treatment services firm to Neutral from Buy.

Beazley fell 2.2% after the insurer said its early estimate of costs arising from recent wildfires in California is USD40 million, net of reinsurance. The company added that investment markets continue to be volatile, and its year-to-date investment return is 0.5%.

In other company news, FTSE Russell said late Wednesday that Royal Mail and Just Eat will be demoted from the FTSE 100, effective December 24.

Just Eat was down 3.9% in early trade, among worst large-cap performers, while Royal Mail was down 1.1%. Shares in Royal Mail also went ex-dividend on Thursday, meaning new buyers no longer qualify for the latest payout from the postal operator. Replacing the two in the blue-chip index will be Hiscox and Spirax-Sarco Engineering, though they were faring no better, down 1.5% and 1.9% respectively early Thursday.

The economic events calendar on Thursday has US ADP employment data for November, which preludes Friday's closely-watched monthly jobs report, at 1315 GMT.

Oil ministers from some of the world's biggest petroleum producers meet on Thursday and Friday to discuss an output cut to bolster prices, as Middle Eastern tensions and US demands for cheap oil add a political dimension to the talks.

The Organization of the Petroleum Exporting Countries is mulling a reduction in the region of 1 million barrels per day, which would take about 1% of global supply off the market.

Together, the 25 so-called OPEC-plus countries have been implementing an output cap since early 2017. However, there has been a dramatic price drop from USD86 per barrel in October to below USD60 last week, triggering a move towards a further reduction.

However, there are rifts amongst some OPEC members. Qatar announced its exit from OPEC this week, while Iran has complained that Riyadh is colluding with Washington to enforce the US embargo on Iranian oil.

Brent oil was quoted at USD61.34 a barrel early Thursday, down from USD63.15 late Wednesday.

In the latest Brexit developments, UK Prime Minister Theresa May has been given a stark warning that her premiership could be ended if she ploughs ahead with her Brexit deal.

The Democratic Unionist Party, which props up May's administration, made clear it would support the government in a confidence motion if the Brexit deal was rejected by MPs on December 11.

But the party's 10 MPs would not back the prime minister if her Brexit deal, including the controversial Northern Ireland backstop measure, survives.

The DUP's position heaps further pressure on May ahead of the crunch vote on the Withdrawal Agreement and Political Declaration thrashed out after months of negotiations in Brussels.

Labour has indicated it will table a motion of no confidence in the prime minister in the wake of a defeat on such a pivotal issue for May.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2018 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
Hiscox Ltd 1,585.00 GBX -1.37 -
Smith (DS) PLC 307.10 GBX -1.35 -
Ted Baker PLC 1,512.00 GBX 2.65 -
Spirax-Sarco Engineering PLC 6,100.00 GBX 0.00 -
Royal Mail PLC 284.90 GBX -3.85 -
Beazley PLC 496.60 GBX -1.66 -
Bodycote PLC 699.00 GBX -1.20 -
Just Eat PLC 579.00 GBX 0.35 -
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