London midday: Stocks off lows after UK PMIs; Sino-US tensions in focus

London stocks were still in the red but off earlier lows by midday on Friday as it emerged that business activity in the UK grew at its fastest pace in five years in July, amid concerns about escalating tensions between the US and China.

The FTSE 100 was down 1.1% at 6,145.65.

Spreadex analyst Connor Campbell said: "Though it has felt like a weirdly aimless week, it seems the markets have settled on a direction - and it’s not up.

"In a fairly predictable, if no less troublesome, move, Beijing ordered the closure of the US consulate in Chengdu, as retaliation for the Trump administration shuttering the Chinese consulate in Houston.

"The fear is that this might only be the start of a re-escalation in tensions between the two superpowers, especially as Trump seeks to distract from his disastrous domestic policies in the run-up to November’s Presidential election.

"China has said that it ‘does not want to see’ the current situation, and that the ‘responsibility rests entirely with the United States’ regarding what happens next. Which, given the leadership stateside, has provided no comfort to investors at all."

There was some good news on home turf, however, as the latest figures from the Office for National Statistics showed that retail sales continued to recover in June as non-essential shops reopened amid the lifting of coronavirus restrictions.

Retail sales rose 13.9% on the month following a revised 12.3% increase in May, beating expectations of an 8% jump. On the year, retail sales were down 1.6% in June, which was a big improvement on the 12.9% decline seen in May and better than expectations of a 6.4% fall.

Meanwhile, IHS Markit’s preliminary composite output index - which measures activity in services and manufacturing - rose to 57.1 from 47.7 in June, beating expectations for a reading of 51.1 and marking the fastest growth June 2015.

The reading was also above the 50.0 level that separates contraction from expansion for the first time since February and well above the record low of 13.8 seen in April.

The PMI for the services sector pushed up to a 60-month high of 56.6 in July from 47.1 in July, while the manufacturing PMI rose to a 16-month higher of 53.6 from 50.1.

Chris Williamson, chief business economist at IHS Markit, said: "The UK economy started the third quarter on a strong footing as business continued to reopen doors after the Covid-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter."

In equity markets, Vodafone fell after it said first-quarter organic service revenue declined 1.3%, with total revenue down 1.4% to £10.5bn. The company also announced that it plans to list its towers infrastructure business in Frankfurt early next year.

Education publisher Pearson lost ground after saying it swung to a first-half loss due to the impact of the coronavirus, but that it expects to deliver adjusted operating profit broadly consistent with expectations.

Cineworld tumbled after Disney said it was delaying the release of the Mulan and Spiderman films indefinitely and pushing back the release of the Star Wars and Avatar films by a year.

On the upside, plumbing and heating supplies group Ferguson rallied after it said trading had improved steadily since the height of coronavirus lockdowns in April.

Centrica surged as the British Gas owner said it was selling its US energy business to NRG Energy $3.6bn (£2.87bn) as part of a plan to turn the company around. It also reported a half-year loss of £135m due to the coronavirus pandemic as it took a one-off charge of £1bn.

Engineer IMI was a high riser after it posted a jump in interim profit, thanks in part to a temporary surge in demand for ventilator parts due to the coronavirus pandemic, and said it was reinstating its full-year dividend.

Market Movers

FTSE 100 (UKX) 6,145.65 -1.06%
FTSE 250 (MCX) 17,323.82 -0.95%
techMARK (TASX) 3,776.51 -1.77%

FTSE 100 - Risers

Ferguson (FERG) 7,038.00p 2.39%
Whitbread (WTB) 2,307.00p 1.85%
Pennon Group (PNN) 1,070.00p 1.52%
United Utilities Group (UU.) 885.20p 1.49%
Tesco (TSCO) 219.20p 1.48%
Johnson Matthey (JMAT) 2,284.00p 1.15%
3i Group (III) 876.40p 1.08%
InterContinental Hotels Group (IHG) 3,824.00p 1.00%
Morrison (Wm) Supermarkets (MRW) 186.45p 0.92%
GVC Holdings (GVC) 749.40p 0.46%

FTSE 100 - Fallers

Vodafone Group (VOD) 122.92p -4.57%
Ocado Group (OCDO) 2,087.00p -4.22%
M&G (MNG) 167.05p -3.55%
Just Eat Takeaway.Com N.V. (CDI) (JET) 8,138.00p -3.35%
Scottish Mortgage Inv Trust (SMT) 883.00p -3.34%
Pearson (PSON) 533.80p -2.95%
JD Sports Fashion (JD.) 607.40p -2.94%
Prudential (PRU) 1,169.50p -2.78%
Avast (AVST) 572.50p -2.55%
Burberry Group (BRBY) 1,311.50p -2.49%

FTSE 250 - Risers

Centrica (CNA) 47.42p 17.46%
IMI (IMI) 1,088.00p 8.15%
TBC Bank Group (TBCG) 793.00p 4.34%
Helios Towers (HTWS) 149.80p 2.04%
Sabre Insurance Group (SBRE) 264.00p 1.54%
Tate & Lyle (TATE) 668.80p 1.46%
PureTech Health (PRTC) 273.50p 1.30%
IP Group (IPO) 69.50p 1.16%
ICG Enterprise Trust (ICGT) 780.00p 1.04%
Drax Group (DRX) 273.80p 1.03%

FTSE 250 - Fallers

Cineworld Group (CINE) 47.90p -9.66%
Equiniti Group (EQN) 139.20p -5.95%
National Express Group (NEX) 150.40p -5.76%
Trainline (TRN) 416.00p -4.10%
Kaz Minerals (KAZ) 548.20p -4.03%
Workspace Group (WKP) 561.50p -4.02%
Spirent Communications (SPT) 258.50p -3.90%
Network International Holdings (NETW) 443.60p -3.86%
Micro Focus International (MCRO) 299.80p -3.79%
Go-Ahead Group (GOG) 672.00p -3.59%