21st Jul 2014 09:49
LONDON (Alliance News) - The UK's main stock indices are trading lower Monday as all early positivity has given way to concern over the economic impact on the European economy of a possible fresh round of sanctions against Russia, which are likely to be announced this week.
By mid-morning Monday the FTSE 100 is down 0.2% at 6,735.69, the FTSE 250 is down 0.5% at 15,486.90, and the AIM All-Share is down 0.1% at 767.75.
Within the eurozone, Russia's largest trading partner, major markets are performing worse, with the German DAX 30 down 0.8% and the French CAC 40 down 0.5%.
"Scenes of conflict dominate news screens at present, be they in Gaza, Syria or Ukraine, and the result for financial markets has been an outbreak of risk aversion," said IG market analyst Chris Beauchamp.
Following the announcement of a new round of sanctions against Russia by the US last week, and the subsequent comments from Russian President Vladimir Putin that they will bring US-Russian relations to "a dead-end", US Secretary of State John Kerry had been upping the pressure on Europe to follow up with some tougher sanctions of its own, following the downing of a Malaysian Airlines passenger jet in eastern Ukraine.
"We hope this is a wake-up call for some countries in Europe that have been reluctant to move," Kerry said as part of a number of weekend television interviews.
The German DAX, which is particularly closely linked to Russian businesses, is underperforming other European majors for a second consecutive session in anticipation of new sanctions that will inevitably hurt both sides at a precarious time for the already-weak eurozone economic recovery.
Within UK equity movers, Tesco leads the FTSE 100 gainers, up 1.9% following the surprise announcement that Chief Executive Officer Philip Clarke will step down on October 1, to be replaced by Dave Lewis, who is currently president of Unilever's Personal Care unit, as well as a non-executive director of British Sky Broadcasting.
Tesco also warned that its sales and trading profit for the first half are "somewhat below expectations". Investors and analysts have expressed little surprise at the profit warning, given the well documented price pressure in the UK supermarket sector at the moment, and instead are hopeful that the incoming CEO can turn things around.
"We welcome this appointment as Mr Lewis is a first class executive in our view who has been a great success at Unilever," said Shore Capital Head of Research Clive Black. "We see Mr. Lewis? new appointment as a loss for Unilever." Unilever shares are fell slightly after the open, but by mid-morning are up 0.3%.
The other UK supermarket names are underperforming in light of the most recent move by Tesco in the ongoing battle within the sector for market share. Morrisons leads the FTSE 100 fallers, down 1.7%, and Sainsbury's is down 1.3%.
Housebuilders are under a little pressure following the release of the latest Rightmove UK house price index, which fell for the first time this year in July. The index fell by 0.8% in the month, following just a 0.1% gain in June, as the tighter mortgage lending rules recently introduced by the Bank of England to calm the rampant UK housing market appear to be having some effect. The Rightmove survey showed prices up 6.5% on a yearly basis, down from 7.7% in June.
FTSE 100-listed housebuilders Barratt Developments and Persimmon are down 1.3% and 1.1%, respectively.
Tobacco stocks also are under pressure following weekend reports that US sector giant Reynolds has been hit with a potential USD23.6 billion fine following a lawsuit filed by the wife of a smoker who died of lung cancer. Historically, big fines against tobacco companies have been reduced after appeal, but the ruling is enough to put a dent in sentiment for the sector which is currently seeing a spike in merger and acquisition activity. Imperial Tobacco is down 1.3%, and British American Tobacco is down 0.8%.
The data calendar is very quiet for the rest of the day, leaving the the focus on the continuation of the US second quarter earnings season, with on-demand streaming media group Netflix amongst the names due to report.
Currently, futures markets indicate that US stocks will open a little softer, with the DJIA and the S&P 500 both pointing down about 0.2%.
By Jon Darby; [email protected]; @jondarby100
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