22nd Jul 2020 12:19
(Alliance News) - Stocks in London were lower at midday on Wednesday as investors became fearful of an escalation in tensions between the governments of the world's two largest economies.
The US has ordered China to close its consulate in Houston, Texas, Beijing said Wednesday, in what it called a "political provocation" that will further harm diplomatic relations.
The move comes as tensions soar between the world's two biggest economies on a number of fronts, including a controversial national security law in semi-autonomous Hong Kong.
"China urges the US to immediately withdraw its wrong decision, or China will definitely take a proper and necessary response," said foreign ministry spokesman Wang Wenbin, adding that China was told only Tuesday that the consulate would have to close.
"It is a political provocation unilaterally launched by the US side, which seriously violates international law...and the bilateral consular agreement between China and the US," Wang said.
He added that China "strongly condemns" the "outrageous and unjustified move which will sabotage China-US relations".
According to local media in Houston, firefighters and police were called to the consulate building on Tuesday evening on reports that documents were being burned in the building's courtyard.
The FTSE 100 index was down 58.75 points, or 0.9%, at 6,210.98. The mid-cap FTSE 250 index was 71.75 points, or 0.9%, lower at 17,430.08. The AIM All-Share index was down 2.12 points, or 0.2%, at 890.32.
The Cboe UK 100 index was down 0.9% at 618.54. The Cboe 250 was down 0.5% at 14,813.54, and the Cboe Small Companies index was down 0.3% at 9,196.06.
In mainland Europe, the CAC 40 in Paris was down 1.0%, while the DAX 30 in Frankfurt was down 0.3%.
"The bullish move in recent days was connected to the EU's EUR750 billion rescue fund meeting, and confirmation came through yesterday that a deal was struck. Now that the dust has settled, some dealers are banking their profits. In the past hour, it was announced the US government ordered the Chinese consulate in Houston to close, and this added to the cautious mood. Tensions between the US and China have been brewing recently in relation to Hong Kong, and this could be the next chapter of the frosty relations between the two countries," said CMC Markets analyst David Madden.
On the London Stock Exchange, Kingfisher was the best large-cap performer, up 9.2%. The DIY retailer reported strong second-quarter trading figures following a good e-commerce performance and the phased reopening of stores France and the UK as lockdown measures eased.
For the second quarter to July 18, group like-for-like sales were up 22%, though year-to-date they were down 3.7%.
Kingfisher, which owns B&Q in the UK and Castorama in France, added that online sales have more than tripled as customers took up DIY projects during lockdown.
Kingfisher said that based on the strong sales seen to date in the second quarter, combined with cost reductions, it anticipates its half-year adjusted pretax profit to be ahead of the prior year. The retailer posted interim pretax profit of GBP245 million last year.
Mexican gold miner Fresnillo was the second-best blue-chip performer, up 9.0%, followed by Russian gold miner Polymetal International, up 3.2%, tracking spot gold prices higher.
Gold was trading at USD1,860.19 an ounce Wednesday morning, up sharply from USD1,839.86 at the London equities close Tuesday. The precious metal hit a fresh nine-year high of USD1,866.28 overnight.
Separately, Fresnillo said first-half gold production decreased 12% to 381,319 ounces from 432,417 ounces last year due to a lower volume of ore processed at Herradura and Noche Buena mines.
Second-quarter gold production was 184,400 ounces, down 6.4% from the first quarter of 2020. The company attributed the fall in production to coronavirus restrictions. Fresnillo said first half silver production was 26.8 million ounces, down 2.7% from last year.
As such, Fresnillo said annual gold production is now expected to be in a range of 785,000 ounces to 815,000 ounces, from a previously guided range of 815,000 to 900,000 ounces, as a result of Covid-19 related disruption. Silver production guidance remains in the range of 51 million ounces to 56 million ounces.
At the other end of the large-cap index, Melrose Industries was by far the worst performer, down 20% after the industrial turnaround specialist said revenue declined by 27% in the first half of 2020.
Melrose - which is highly exposed to the battered aerospace and automotive sectors - said an "extraordinary" trading period saw factories of its Automotive and Powder Metallurgy businesses temporarily shut in Europe and the Americas due to Covid-19.
Melrose said trading was in line with expectations until mid-March and then fell steeply in the second quarter due to Covid-19. After cost cuts, however, Melrose said it generated GBP200 million in free cash flow before restructuring costs and the January acquisition of Forecast 3D, reducing net debt by GBP90 million in the half-year.
"Engineering firm Melrose is right in the teeth of the coronavirus crisis as both of its main end markets - the automotive and aerospace industries - have suffered disproportionately from its impact. That's reflected in the second quarter loss revealed by the latest trading update and the decision not to pay a first-half dividend," said AJ Bell's Russ Mould.
"The pain looks deeper and longer lasting for the aerospace division, and it seems likely the inevitable job cuts flagged by the company are concentrated here," Mould added.
The pound was quoted at USD1.2668 Wednesday midday, lower from USD1.2736 at the London equities close Tuesday.
The euro stood at USD1.1581 at midday in London, up sharply from USD1.1491 late Tuesday. The single currency was extending gains against the greenback following the EU stimulus agreement and was sitting at its highest levels since early 2019.
Against the yen, the dollar was trading at JPY106.91, firm from JPY106.85 on Tuesday afternoon in London.
Stocks in New York look set to open lower on Wednesday as investors fret over slow progress from US lawmakers in drafting a new stimulus package while the coronavirus continues to rage across the country.
The DJIA was called down 0.4%, the S&P 500 index down 0.3% and the Nasdaq Composite down 0.2%.
Democrats have drawn up a new USD3.5 trillion plan, while Republicans and officials in the White House are bogged down trying to draw up their own stimulus, which is said to be around USD1 trillion.
Among the sticking points are the extension of a supplement to unemployment benefits and President Donald Trump's desire for tax cuts. With Congress due to take a break in August, there is a concern a deal will not be agreed, leaving millions without cash.
Still, Trump said he was optimistic, telling a White House briefing: "We're working very hard on it, we're making a lot of progress."
Meanwhile, Trump on Tuesday acknowledged the coronavirus pandemic will "get worse" and noted a recent surge in cases, marking a change of tone as he revived his regular press briefings on the outbreak.
"It will probably, unfortunately, get worse before it gets better - something I don't like saying about things, but that's the way it is," Trump said.
Ahead in the US earnings calendar, there are second-quarter results from software company Microsoft before the market open and from electric carmaker Tesla after the close in New York.
Earlier this month, Tesla blew past Japan's Toyota to become the world's most valuable car company with a market value of almost USD300 billion, making its eccentric founder Elon Musk the fifth richest man in the world in the process.
Musk's net worth stands at around USD74 billion according to Forbes, eclipsing the likes of Berkshire Hathaway CEO Warren Buffett and LA Clippers owner and former Microsoft CEO Steve Ballmer.
Tesla shares are up 1.8% in pre-market trade.
Brent oil was quoted at USD43.88 a barrel Wednesday midday, down from USD44.62 a barrel at the London equities close Tuesday.
By Arvind Bhunjun; [email protected]
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