LONDON MARKET MIDDAY: Stocks Slide With BAT Dipping; Focus On US CPI

(Alliance News) - London share prices were lower at midday on Wednesday, amid a shift away from ...

Alliance News 12 June, 2019 | 12:11PM
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(Alliance News) - London share prices were lower at midday on Wednesday, amid a shift away from risk assets such as equities into safe havens such as gold.

The FTSE 100 index was down 51.74 points, or 0.7%, at 7,346.71. The FTSE 250 was down 87.22 points, or 0.5%, at 19,238.50 while the AIM All-Share was flat at 945.33.

The Cboe UK 100 index was down 0.7% at 12,459.34. The Cboe UK 250 was down 0.4% at 17,276.26 with the Cboe UK Small Companies down 0.4% at 11,668.86.

Pushing the FTSE 100 into negative territory were losses for Lucky Strike cigarette maker British American Tobacco - the seventh largest company listed in London by market capitalisation - and a downgrade for Auto Trader.

This was offsetting gains by Mexican gold miner Fresnillo, benefiting from a rising gold price.

Focus now is on the latest US consumer price inflation figures in the London afternoon, and whether the data will support market expectations for an interest rate cut by the Federal Reserve this year.

In mainland Europe, the CAC 40 stock index in Paris was down 0.6% while the DAX 30 in Frankfurt was 0.4% lower.

"After a pleasant absence of a few days, the US-China trade war is back on the agenda," observed Chris Beauchamp, chief market analyst at IG.

On Tuesday, US President Donald Trump urged China to agree to terms of a trade deal allegedly reached earlier this year, ahead of talks in Japan with Chinese President Xi Jinping later this month.

"We had a deal with China and unless they go back to the deal I have no interest," Trump said outside the White House before flying to Iowa.

Trump lauded tariffs imposed on China - a 25% levy on some USD250 billion worth of goods - saying they have created a "level playing field" for the first time since Beijing joined the World Trade Organization in 2001.

IG's Beachamp added about Wednesday's market activity: "On top of this [trade] worry is some nervousness ahead of today's CPI reading in the US. Having convinced themselves that the Fed will cut soon, investors are hoping that today's figure will confirm their hopes, but are understandably worried that they have got ahead of themselves."

US consumer price inflation is due out at 1330 BST. It is seen easing to 1.9% in May from 2.0% in April according to consensus cited by FXStreet. Reduced inflation pressure would make an interest rate cut easier for the Fed to make.

Ahead of the data, stocks in New York are on course for a soft open with the Dow Jones and S&P 500 both called down 0.3% and the Nasdaq Composite pointed 0.6% lower.

Amid the mid-week risk-off sentiment, safe-haven gold was back in demand. An ounce was quoted at USD1,335.55 at midday, versus USD1,325.80 late Tuesday.

This led Mexican gold miner Fresnillo to gain 2.1%, becoming the top performer in the FTSE 100, with mid-cap peers such as Hochschild Mining and Centamin rising 4.0% and 1.5%, respectively.

Offsetting this and keeping the FTSE 100 in negative territory, however, was BAT down 5.0% despite a broadly upbeat trading update.

"British American Tobacco had rallied hard into today's trading update, so the 'steady as she goes' message was unlikely to inspire short-term traders to hold on to their positions," commented IG's Beauchamp.

BAT described itself as "on track" to deliver constant currency revenue growth towards the upper half of its 3% to 5% long-term guidance range for 2019. This is despite global industry volumes being expected to fall by around 3.5% on the year prior.

BAT also anticipated "good" operating margin improvement in 2019, despite further investment in its New Categories, which includes vaping, heat-not-burn and other new products lines. All told, BAT forecasts constant-currency adjusted operating profit to deliver growth in the "upper half" of its 5% to 7% guidance range.

Auto Trader dipped 2.6% after UBS cut the digital automotive retail firm to Sell from Neutral.

Among the mid-cap losers in the FTSE 250, meanwhile, were guarantor loan firm Amigo Holdings, subprime lender Provident Financial, and over-50s insurer Saga.

Amigo Holdings slide 9.2% after a major shareholder said is still considering selling some of its holding in the company, having opted not to in the immediate future.

Richmond Group, which owns 61% of Amigo, said it has been investigating selling "part" of the holding. With a market capitalisation of approximately GBP1.33 billion for Amigo, Richmond's stake is worth approximately GBP816.6 million.

A broker downgrade hit Provident Financial, the stock 5.3% lower. Canaccord cut the subprime lender and recent bid target to Sell from Hold.

Saga declined 4.1% after the firm, which sells insurance and cruises to retirees, said Chief Executive Officer Lance Batchelor will retire with effect from the end of January 2020, when the company's current financial year ends. Batchelor has been in the role at Saga since 2014.

Elsewhere on the Main Market, Pendragon shares slumped 23% after the car seller warned it expects to generate a loss in 2019.

Pendragon now expects an underlying loss for the current financial year, with the first half to be "significantly loss making" before returning to profit in the remainder of the year.

This is due to accelerated Car Store losses, an increase in used car stock at the end of the previous financial year, lower than anticipated new car margins, and increases in costs, particularly in aftersales.

"You need to consider that this is coming from a new management team, implying that strategic errors were the fault of the old team. Mark Herbert took over as CEO on 1 April, having joined from Jardine Matheson, and Mark Willis became CFO a week later," commented Russ Mould at stockbroker AJ Bell.

"They've done their review and are now laying out a plan to fix the business," added Mould. "Unfortunately market conditions are working against them and so it is likely to be a painful recovery."

By Lucy Heming;

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Amigo Holdings PLC 10.10 GBX -7.51 -
Pendragon PLC 8.99 GBX -3.70 -
Centamin PLC 187.90 GBX 0.64 -
Fresnillo PLC 940.00 GBX 1.56 -
Auto Trader Group PLC 513.60 GBX -0.08 -
British American Tobacco PLC 2,878.00 GBX -1.44
Provident Financial PLC 169.20 GBX 2.55 -
Saga PLC 15.68 GBX -1.45 -
Hochschild Mining PLC 192.70 GBX -0.05 -

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