London midday: Stocks still in the red on Apple shock but retailers provide cheer

London stocks were still in the red by midday on Thursday after US technology giant Apple cut its first-quarter guidance, but the FTSE was faring better than its European counterparts as retailers were boosted by a well-received update from Next.

The FTSE 100 was down 0.6% at 6,697.50, while the pound was off 0.4% against the dollar and the euro at 1.2563 and 1.1071, respectively.

Sentiment took a hit after Apple said after the close of US markets on Wednesday that its first-quarter sales would be lower than expected due to weaker sales in China. The company now expects revenues of around $84bn in the three months to 29 December, down from previous guidance of between $89bn and $93bn. This would mark Apple’s first year-on-year quarterly drop since 2016.

In a letter to shareholders, chief executive Tim Cook highlighted slowing growth in China and trade tensions with the US.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China," Cook said.

The news from Apple only served to exacerbate worries about a slowdown in China following disappointing Chinese manufacturing figures earlier in the week.

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?

"Certainly, last night’s letter to investors from Apple has sent shockwaves through the markets - Apple shares tanked more than 7% in after-hours trading, while US stock futures have also shot lower after a flat session."

Wilson said 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.

"It tells us that China is experiencing a period of softness. Most of Apple’s revenue shortfall versus guidance, and over 100% of its year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad, the company said. It tells us that the trade war between the US and China is having a dampening effect on demand and activity. It is also a factor of dollar strength."

The Japanese yen surged to an eight-month high against the dollar after the Apple warning, breaking through key technical support levels as investors looked for a safe haven trade. In what was being described as a "flash crash" in currency markets, the yen also rose nearly 8% against the Australian dollar to its best level since 2009, and 10% versus the Turkish lira.

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.

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.

The Markit/CIPS 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) 6,697.50 -0.55%
FTSE 250 (MCX) 17,553.06 -0.19%
techMARK (TASX) 3,292.16 -0.88%

FTSE 100 - Risers

Next (NXT) 4,376.00p 4.76%
Taylor Wimpey (TW.) 139.97p 2.28%
Tesco (TSCO) 195.90p 2.27%
Marks & Spencer Group (MKS) 252.90p 1.98%
Fresnillo (FRES) 905.20p 1.94%
Barratt Developments (BDEV) 470.80p 1.86%
Associated British Foods (ABF) 2,108.00p 1.74%
Kingfisher (KGF) 212.70p 1.67%
Persimmon (PSN) 1,972.00p 1.62%
Berkeley Group Holdings (The) (BKG) 3,506.00p 1.24%

FTSE 100 - Fallers

Burberry Group (BRBY) 1,632.00p -5.42%
Evraz (EVR) 455.53p -4.94%
Intertek Group (ITRK) 4,621.00p -4.07%
Sage Group (SGE) 579.80p -3.27%
Hiscox Limited (DI) (HSX) 1,560.00p -3.23%
Halma (HLMA) 1,314.00p -2.88%
Scottish Mortgage Inv Trust (SMT) 446.45p -2.70%
Standard Chartered (STAN) 590.60p -2.61%
Smith & Nephew (SN.) 1,395.50p -2.34%
Experian (EXPN) 1,842.50p -2.18%

FTSE 250 - Risers

Hochschild Mining (HOC) 175.23p 6.33%
Rank Group (RNK) 148.80p 6.29%
Galliford Try (GFRD) 643.73p 5.96%
Royal Mail (RMG) 285.70p 4.81%
Superdry (SDRY) 487.20p 4.73%
Dunelm Group (DNLM) 559.50p 4.58%
Games Workshop Group (GAW) 3,144.40p 4.47%
Centamin (DI) (CEY) 119.30p 3.97%
Clarkson (CKN) 2,090.00p 3.72%
Wizz Air Holdings (WIZZ) 2,845.00p 3.38%

FTSE 250 - Fallers

Sophos Group (SOPH) 351.20p -7.04%
Renishaw (RSW) 3,924.00p -6.70%
Amigo Holdings (AMGO) 272.25p -5.47%
IMI (IMI) 929.50p -4.13%
Rathbone Brothers (RAT) 2,352.00p -3.76%
Polar Capital Technology Trust (PCT) 1,094.00p -3.36%
Kaz Minerals (KAZ) 512.40p -3.03%
Hikma Pharmaceuticals (HIK) 1,654.00p -2.99%
Capita (CPI) 110.80p -2.98%
Vivo Energy (VVO) 126.14p -2.97%