London close: Stocks drop but analysts don't throw in the towel

London stocks finished near their worst levels of the session on Thursday after US technology giant Apple cut its first-quarter guidance - its first such move in almost 20 years - and a key gauge of factory sector conditions in the States dropped in December by the most since 2008.

But yet again, in both instances the underlying cause was recent weakness in the Chinese economy.

The FTSE 100 finished down 0.62% or 41.57 points at 6,692.66, while the pound staged a timid bounce of 0.24% against the US dollar to 1.2639 but was down by 0.17% to 1.1085 against the single currency.

Nevertheless, despite all the 'gloom and doom' in financial markets, Samuel Tombs at Pantheon Macroeconomics pointed out that: "The 15% fall in the FTSE 100 since its May 2018 peak undoubtedly is an unwelcome development for the economy, but past experience suggests we shouldn't rush to revise down our forecasts for GDP growth.

"All recessions have been preceded by sharp declines in equity prices, but not all sell-offs have triggered downturns."

After the close of US markets the day before, Apple told shareholders that sales over the Christmas quarter would come in at around $84bn, which was down from previous guidance for between $89bn and $93bn.

Neil Wilson, chief market analyst at Markets.com, said: "For a while now there’s been an adage in the markets that as long as Apple was doing fine, everyone else would be OK. Therefore, Apple’s rare profits warning is a red flag for market watchers. The question is to what extent this is more Apple-specific, or more macro?"

Wilson added that while the a lot of the issues are specific to Apple, the warning also says a lot about what is happening in the broader global economy, specifically China.

Meanwhile, across the Pond, on Thursday investors were trying to make sense of vastly contradictory readings on different parts of the American economy with seasonal factors linked to the Christmas holidays further muddying the waters.

On the one hand, consultancy ADP reported a 271,000 person jump in hiring (consensus: 178,000), underlining the robust state of the US labour market, but the latest weekly unemployment claims from Washington data surprised to the upside, albeit possibly due to the recent partial shutdown of the US federal government, according to Pantheon Macroeconomics's Ian Shepherdson.

To take note of, the US Department of Labor was set to publish its key monthly jobs report the next day.

In any case, in parallel the ISM institute's closely-followed factory sector Purchasing Managers' Index dropped from a reading of 59.3 in November to 54.1 for December - for the lagest one-month drop since 2008 - a poor year for global stockmarkets.

Mining stocks Glencore, Anglo American, Rio and BHP, which are heavily reliant on demand from China, and luxury fashion brand Burberry - also dependent on Chinese consumption - were under the cosh.

Evraz was also dragged lower.

But overall losses were limited by strength in the retail sector as Next rallied after trimming its full-year profit guidance to £723m from £727m but posting a 1.5% jump in sales over the key Christmas period. The update provided a boost to the sector, with Marks & Spencer, Primark owner AB Foods and B&Q owner Kingfisher all trading higher.

Russ Mould, investment director at AJ Bell, said: "Retail is currently about survival of the fittest and Next is certainly looking like one of the healthiest in its pack.

"A decade ago, Next reporting a 9.2% drop in high-street sales would have been disastrous. Yet today no-one will be surprised by such a performance as it reflects a structural change in how we shop for goods.

"The fact that Next has barely changed its earnings guidance despite high-street gloom is deemed a major success by investors, hence why its share price has shot up on the news.

"The future is all about the shift to online and Next is certainly making good progress with 15.2% sales growth through this channel in the two months to 29 December. However, it will pay to watch profit margins closely as Next has already flagged increased operational costs associated with higher online sales.”

Elsewhere, British Land, Experian, Auto Trader, Aveva, Dairy Crest and McCarthy & Stone were among the companies whose stock went ex-dividend.

Data released earlier showed that activity in the UK construction sector eased to a three-month low in December.

Markit/CIPS's UK construction total activity index fell to 52.8 from 53.4 in November, remaining above the 50.0 level that separates contraction from expansion for the ninth consecutive month but a touch below expectations for a reading of 52.9.

The rate of expansion was the slowest since September as subdued demand conditions led to softer output growth. In addition, there were also some reports that unusually wet weather had acted as a brake on construction work.

Commercial building was the worst-performing category, with activity expanding at the slowest rate since last May. Work on civil engineering projects, however, was the strongest-performing area of construction activity at the end of last year, with growth the fastest for just over one-and-a-half years.

Tim Moore, economics associate director at IHS Markit, said optimism levels remained subdued in relation to those recorded by the survey over much of the past six years, largely due to concerns that Brexit uncertainty will continue to encourage delays with decision-making, especially on commercial projects.

Market Movers

FTSE 100 (UKX) 6,692.66 -0.62%
FTSE 250 (MCX) 17,438.91 -0.84%
techMARK (TASX) 3,286.54 -1.05%

FTSE 100 - Risers

Next (NXT) 4,355.00p 4.14%
Tesco (TSCO) 199.85p 4.07%
Morrison (Wm) Supermarkets (MRW) 216.55p 2.24%
AstraZeneca (AZN) 6,010.00p 1.81%
Associated British Foods (ABF) 2,102.00p 1.45%
Kingfisher (KGF) 212.10p 1.39%
Imperial Brands (IMB) 2,413.50p 1.32%
Marks & Spencer Group (MKS) 251.20p 1.29%
Centrica (CNA) 137.30p 0.96%
Severn Trent (SVT) 1,863.50p 0.78%

FTSE 100 - Fallers

Evraz (EVR) 442.10p -7.74%
Burberry Group (BRBY) 1,624.50p -5.91%
Glencore (GLEN) 269.05p -4.76%
Sage Group (SGE) 572.20p -4.54%
Hiscox Limited (DI) (HSX) 1,541.00p -4.40%
Intertek Group (ITRK) 4,615.00p -4.34%
Antofagasta (ANTO) 738.00p -4.21%
International Consolidated Airlines Group SA (CDI) (IAG) 581.60p -3.93%
Scottish Mortgage Inv Trust (SMT) 441.35p -3.81%
NMC Health (NMC) 2,604.00p -3.70%

FTSE 250 - Risers

Centamin (DI) (CEY) 122.15p 6.45%
Clarkson (CKN) 2,125.00p 5.46%
Hochschild Mining (HOC) 173.00p 4.98%
Superdry (SDRY) 488.20p 4.94%
Acacia Mining (ACA) 202.30p 4.87%
Dunelm Group (DNLM) 558.00p 4.30%
Just Group (JUST) 95.75p 3.40%
Hilton Food Group (HFG) 942.00p 3.29%
Plus500 Ltd (DI) (PLUS) 1,426.00p 3.18%
Royal Mail (RMG) 281.30p 3.15%

FTSE 250 - Fallers

Renishaw (RSW) 3,890.00p -7.51%
IMI (IMI) 899.00p -7.27%
Kaz Minerals (KAZ) 493.30p -6.64%
Electrocomponents (ECM) 480.00p -5.51%
Capita (CPI) 108.45p -5.04%
Aveva Group (AVV) 2,284.00p -4.75%
Rathbone Brothers (RAT) 2,328.00p -4.75%
TBC Bank Group (TBCG) 1,456.00p -4.71%
Sophos Group (SOPH) 360.00p -4.71%
Sanne Group (SNN) 556.00p -4.64%