LONDON MARKET OPEN: Muted Start As US And China To Sign Phase One Deal

(Alliance News) - Stock trading in London was subdued early Wednesday as the US and China prepare ...

Alliance News 15 January, 2020 | 8:40AM
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(Alliance News) - Stock trading in London was subdued early Wednesday as the US and China prepare to sign their 'phase one' trade deal, with doubts growing over the prospects of further progress in relations between the two.

The FTSE 100 index was down 7.97 points, or 0.1%, at 7,614.38 early Wednesday. The mid-cap FTSE 250 index was down 59.38 points, or 0.3%, at 21,696.67. The AIM All-Share index was up 0.2% at 971.70.

The Cboe UK 100 index was down 0.1% at 12,904.75. The Cboe 250 was down 0.3% at 19,620.32, and the Cboe Small Companies down 0.5% at 12,434.66.

In mainland Europe, the CAC 40 in Paris was up 0.1% while the DAX 30 in Frankfurt was flat early Wednesday.

"The US–China trade deal is like watching a live show in the theatre of the absurd. The Trump administration revealed a detail that nobody expected just before the signature of the phase-one trade deal today: the tariff cuts will not take effect before the US election in November," commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank

"This means that the US tariffs will continue weighing on Chinese exports for almost an additional year, while the emerging market giant will certainly be asked to deliver on its promise to buy massive amounts of US farm goods and manufactured products immediately," Ozkardeskaya continued. "The risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal."

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.5%. In China, the Shanghai Composite ended down 0.5%, while the Hang Seng index in Hong Kong closed 0.4% lower.

"While tariffs remain in place, any energy demand boost from the phase one deal might not be so forthcoming," said Jasper Lawler at London Capital Group.

Brent oil stood at USD64.30 a barrel, lower than USD64.70 late Tuesday.

In other commodities, safe haven asset gold was quoted at USD1,553.08 an ounce early Wednesday, higher than USD1,542.80 at the London equities close on Tuesday.

In the economic calendar on Wednesday, there is annual German GDP at 0900 GMT, UK inflation at 0930 GMT and eurozone trade and industrial production at 1000 GMT. US producer prices are at 1330 GMT.

Sterling was quoted at USD1.3015 early Wednesday, higher than USD1.3003 at the London equities close on Tuesday.

Wednesday's UK inflation data will be in close focus following recent speculation over a Bank of England rate cut.

"Sterling was volatile yesterday fluctuating around 1.30 against the US dollar as markets assessed the likelihood of an interest rate reduction by the BoE on 30th January. Markets are now attaching a probability of close to 50% to a decrease following comments last week from policymakers that were seen as dovish," said Lloyds Bank.

UK consumer price inflation is expected at 1.5% in December, according to FXStreet consensus, which would match the rate seen in November. The BoE targets a 2% inflation rate.

The euro was quoted at USD1.1123 early Wednesday, flat on USD1.1127 late Tuesday. Against the yen, the dollar was quoted at JPY109.91 versus JPY110.07.

In early UK company news, Royal Bank of Scotland was down 2.9% after Barclays cut the state-back lender to Underweight from Equal Weight.

Provident Financial was up 2.3% after the subprime lender said profit is expected to be in line with consensus for 2019.

The doorstep lender said its 2019 fourth-quarter results aligned with the firm's internal plans, with its Vanquis Bank sub-prime credit card business results modestly exceeding expectations as a result of "favourable delinquency and tight cost control".

However, while Moneybarn, its sub-prime auto loans business, did produce "attractive receivables growth" in the fourth quarter, it "performed modestly below internal plan" as a consequence of higher impairment. Provident attributed the higher impairment to Moneybarn having achieved higher than forecast growth in 2019.

To support Moneybarn business flows, Provident has agreed a bilateral securitisation facility with NatWest Markets. The facility's initial funding will be GBP100 million, but this is expected to increase to GBP275 million over the next 18 months.

Stobart Group was up 2.1% after Flybe's collapse was averted.

Flybe's shareholders - a consortium including Virgin Atlantic, Stobart Group and Cyrus Capital Partners - agreed to a cash injection, understood to be in the region on tens of millions of pounds, to keep Europe's largest regional carrier in business "alongside government initiatives".

Tullow Oil was down 2.6%. It said it is making good progress on its strategic review as it looks for a new chief executive.

Tullow announced the review early in December, following continued problems at producing fields in Ghana. At the same time, then-chief executive Paul McDade and exploration director Angus McCoss both left the firm, while the dividend was also suspended. The energy firm said on Wednesday progress is being made both in the review and in looking for a new CEO.

At the time of the December review, Tullow also reset production guidance from the TEN and Jubilee oil fields in Ghana. For 2019, it guided for 87,000 barrels of oil per day for 2019, and for between 70,000 barrels and 80,000 barrels in 2020.

Tullow confirmed Wednesday production in 2019 was at 86,700 barrels of oil per day, and it reaffirmed the 2020 guidance.

However, Tullow will also be booking pretax impairments and exploration write-offs to the tune of USD1.5 billion, due to a USD10 per barrel fall in the company's long-term accounting oil price assumption and a reduction in reserves at the TEN field.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Stobart Group Ltd 105.20 GBX -0.38 -
Provident Financial PLC 467.00 GBX 0.80 -
Tullow Oil PLC 51.94 GBX 3.88 -
The Royal Bank of Scotland Group PLC 223.40 GBX 1.96

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