London midday: Stocks pare early losses despite weak factory PMI

Stocks in London are paring earlier losses as investors sift through the latest developments in the US-China trade war over the weekend.

In a White Paper published on Sunday, Beijing shifted the blame for the failure of trade talks to Washington and left analysts and market commentary divided as to whether Beijing remained open to further talks or not.

Overnight on Saturday, Chinese retaliatory tariffs on $60bn-worth of US goods had kicked-in, hot on the heels of Beijing's announcement of a blacklist of foreign companies, which was followed by an investigation into US air shipping giant FedEx.

"For most of this year the assumption had been that, for all the sound and fury around the imposition of tariffs, they wouldn’t last that long and any damage could be easily mitigated," said CMC Markets UK's chief market analyst, Michael Hewson.

"Now it seems that tariffs are likely to last a lot longer and be more wide ranging than originally thought, and investors seem to be now slowly waking up to this."

Against that backdrop, as of 1229 BST the FTSE 100 was trading down by 0.23% or 16.74 points to 7,144.7, having fallen as low as 7,082.54 shortly after the start of the session.

Front month Brent crude oil futures were also off their earlier lows, adding 0.91% to $62.56 a barrel on the ICE.

Underscoring the growing face-off between Beijing and Washington, and also at the weekend, speaking at the Shangri-La Dialogue conference in Singapore, US Secretary of Defence, Patrick Shanahan, said his country would no longer 'tip toe' around Chinese behaviour in Asia.

However, while Shanahan's speech was described as at sometimes conciliatory, China's Defence Minister, Wei Fenghe, warned Washington not to meddle in security matters related to Taiwan and the South China Sea, with his tone described by some commentary as acerbic.

On a more positive note, activity in China's manufacturing sector was steady last month, according to the results of perhaps the most closely-followed survey of conditions in the sector.

Caixin's factory sector PMI for the month of May printed at 50.2, unchanged from the month before and ahead of the consensus forecast for a reading of 50.0.

Nevertheless, Julian Evans-Pritchard at Capital Economics said: "overall, the downbeat PMI readings for April and May suggest that economic growth has not yet bottomed out and is consistent with our view that there are still some downside risks to near-term activity.

"Further ahead, we expect renewed policy easing and the lagged impact of faster credit growth to support the economy."

On home turf, IHS Markit's manufacturing sector Purchasing Managers' Index dropped from a reading of 53.1 for April to 49.4 in May.

Economists had forecast a reading of 52.1.

However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted how Britain's PMI was above that for the euro area for a seventh consecutive month in May and a sub-index linked to manufacturers' optimism regarding output in 12 months' time was at its highest level since September.

"Once volatility in the manufacturing sector is put to once side, the economy still appears to be growing at least in line with its trend rate, suggesting that the MPC will raise interest rates again towards the end of this year, provided a no-deal Brexit is averted," Tombs said.

For later in the day, in the States, the ISM institute's factory sector PMI was scheduled for release at 1500 BST.

And two top Fed officials, the head of the Richmond Fed, Tom Barkin, and his opposite number at St. Louis Fed, James Bullard, were set to take to the podium after the close of trading in London.

AstraZeneca delivers, Kier disappoints

AstraZeneca announced on Monday that its Lynparza pancreatic cancer drug has returned positive phase three trial results, doubling the amount of patients with no disease progression. Three-year overall survival data showed no disease progression at one year for 34% of patients using Lynparza versus 15% on placebos, while 22% of patients with Lynparza had no progression compared to 15% on placebo after two years in multi-centre trials that saw subjects taking two 300mg doses per day.

Troubled construction company Kier said full year underlying operating profit would be £25m lower than previous expectations with higher net debts. Kier, which had reported debt at the end of 2018 of £180.5m, down from £624m said it was likely to report a net debt position as at 30 June 2019, which would have an adverse impact on its FY2019 average month-end net debt position. Net costs from a strategic review of the company were also expected to be £15m than previously forecast.

Smith & Nephew has completed its acquisition of orthopaedic joint reconstruction outfit Brainlab, whose technology is used in more than 500 hospitals worldwide. The FTSE 100-listed global medical technology business said the transaction continues its strategy of investing in best-in-class technologies that enhance its portfolio of digital and robotic surgical products.

Market Movers

FTSE 100 (UKX) 7,149.52 -0.17%
FTSE 250 (MCX) 18,835.30 -0.71%
techMARK (TASX) 3,490.17 0.06%

FTSE 100 - Risers

NMC Health (NMC) 2,384.00p 5.81%
Fresnillo (FRES) 786.59p 2.42%
BAE Systems (BA.) 457.40p 1.11%
Diageo (DGE) 3,357.00p 0.95%
GlaxoSmithKline (GSK) 1,539.40p 0.81%
National Grid (NG.) 799.00p 0.78%
London Stock Exchange Group (LSE) 5,322.00p 0.72%
SSE (SSE) 1,086.03p 0.70%
Hikma Pharmaceuticals (HIK) 1,590.50p 0.66%
AstraZeneca (AZN) 5,871.00p 0.65%

FTSE 100 - Fallers

ITV (ITV) 103.64p -3.37%
Ocado Group (OCDO) 1,158.00p -3.06%
Hargreaves Lansdown (HL.) 2,200.00p -2.91%
Melrose Industries (MRO) 159.35p -2.81%
Standard Life Aberdeen (SLA) 260.10p -2.69%
St James's Place (STJ) 1,021.75p -2.37%
Auto Trader Group (AUTO) 585.60p -2.30%
Standard Chartered (STAN) 671.40p -2.27%
Schroders (SDR) 2,856.00p -2.16%
Prudential (PRU) 1,546.99p -1.93%

FTSE 250 - Risers

Centamin (DI) (CEY) 98.00p 10.29%
Hochschild Mining (HOC) 162.00p 4.52%
Amigo Holdings (AMGO) 257.29p 3.75%
Vivo Energy (VVO) 130.60p 3.49%
Bakkavor Group (BAKK) 124.60p 3.15%
Acacia Mining (ACA) 161.80p 2.80%
Wizz Air Holdings (WIZZ) 3,195.00p 1.95%
Polymetal International (POLY) 864.80p 1.74%
Telecom Plus (TEP) 1,508.00p 1.48%
Britvic (BVIC) 902.50p 1.40%

FTSE 250 - Fallers

Kier Group (KIE) 166.20p -40.26%
Metro Bank (MTRO) 626.50p -8.34%
FirstGroup (FGP) 109.30p -5.20%
Stobart Group Ltd. (STOB) 113.60p -4.86%
Entertainment One Limited (ETO) 417.20p -4.53%
CYBG (CYBG) 174.95p -4.40%
Ascential (ASCL) 366.80p -4.38%
Dixons Carphone (DC.) 111.14p -3.90%
Indivior (INDV) 44.00p -3.85%
Plus500 Ltd (DI) (PLUS) 607.80p -3.80%