London close: Stocks finish weaker on UK-EU deal concerns

London stocks finished in negative territory on Wednesday, amid growing tensions between the US and China and reports the UK is close to giving up on a Brexit trade deal.

The FTSE 100 ended the session down 1% at 6,207.10, and the FTSE 250 was 0.21% weaker at 17,465.73.

Sterling was weaker against its major trading pairs, last losing 0.04% on the dollar to $1.2726, and sliding 0.46% against the euro to €1.0994.

A report from the Telegraph earlier in the day claimed the UK government was now working on the premise that current trade talks with the EU, which started on Monday and were scheduled to end on Thursday, would not result in a deal.

If the two sides cannot agree terms, the UK will have to trade with the EU under World Trade Organization (WTO) terms when the transition period ends on 31 December.

According to the Telegraph, the negotiations had become deadlocked on various core areas, including fishing rights and the role of the European Court of Justice.

Souring relations between the US and China also weighed on sentiment after the State Department ordered the closure of the Chinese consulate in the Texas city of Houston.

“Recently, the relationship between the two largest economies in the world has been strained because the Chinese government is eroding Hong Kong’s autonomy, and that has attracted the anger of many countries,” said CMC Markets analyst David Madden.

“Dealers are fearful that today’s development could spark a new escalation in tensions,” he said, adding that Trump had an election to contest in a few months, so he may not be too aggressive with China with his reelection prospects in mind.

“Nonetheless, dealers dropped stocks as they were coming from a relatively strong position on the back of the €750bn rescue fund deal from the EU, and the hopes for a Covid-19 vaccine.”

Worries about a rise in new coronavirus cases in the US also dented the mood after President Donald Trump conceded that the pandemic may get worse before it gets better.

“It appears that Trump’s pivot towards the presidential in an attempt to boost his plummeting approval ratings - urging Americans to wear face masks during a relatively sombre first daily Covid-19 press conference since April - has worried investors,” said Spreadex analyst Connor Campbell.

“After all, if Trump has now dropped his long-held stance that everything is OK, then it is probably time to really be concerned.”

In equity markets, engineering company Melrose Industries plunged 14.24%, after it warned of potential job losses as it looked to cut costs after second quarter sales slumped during the Covid-19 lockdowns.

Melrose said revenue fell 27% after a "steep decline" in the second quarter as lockdowns shuttered its factories.

However, there was a rebound in June as measures were eased and adjusted operating profits were breakeven and Melrose said it expected to post a small first-half operating profit.

Property developer St Modwen was in the red by 6.91% after saying it swung to a first-half loss and cutting its dividend following a writedown in asset valuations on sites in Wales.

On the upside, precious metals miners Fresnillo, Polymetal and Hochschild were all firmly higher, rising 9.59%, 2.4% and 0.86%, respectively, after gold prices hit a nine-year high.

DIY group Kingfisher rallied 14.62% after saying it expects interim pre-tax profits to be higher than the previous year as strong demand continued across its markets after the lifting of lockdowns, but withheld guidance due to continued uncertainty.

Computacenter surged 12.33% as it said adjusted first-half pre-tax profit has turned out to be "substantially ahead" of the same period last year.

Market Movers

FTSE 100 (UKX)6,207.10-1.00%
FTSE 250 (MCX)17,465.73-0.21%
techMARK (TASX)3,818.96-0.70%

FTSE 100 - Risers

Kingfisher (KGF)256.80p14.62%
Fresnillo (FRES)1,171.50p9.59%
Smurfit Kappa Group (SKG)2,526.00p2.77%
DCC (DCC)7,130.00p2.53%
Polymetal International (POLY)1,707.00p2.40%
Intermediate Capital Group (ICP)1,426.00p2.37%
Persimmon (PSN)2,580.00p2.10%
Admiral Group (ADM)2,374.00p1.54%
Auto Trader Group (AUTO)548.00p1.41%
British Land Company (BLND)375.50p1.24%