By Carla Mozee, MarketWatch
Miners fall on worries about metal demand from China
U.K. stocks finished in the red Tuesday, as trade tensions
between the U.S. and China escalated after U.S. President Donald
Trump threatened additional tariffs on $200 billion imported
Chinese goods.
How markets moved
The FTSE 100 index lost 0.4% to end at 7,603.85, logging a third
straight decline. Tuesday's finish also marked its lowest close
since May 8, according to FactSet data.
The basic materials group of the index fell by the most, but the
utility and telecommunications groups joined the consumer goods
sector in moving higher. On Monday, the London benchmark slipped by
less than 0.1%
(http://www.marketwatch.com/story/uk-stocks-fall-as-trade-conflict-spooks-traders-2018-06-18).
The British pound had last fallen to $1.3168, breaking below
$1.3200 for the first time since November 2017, according to
FactSet data. Sterling traded at $1.3245 late Monday in New
York.
What drove markets?
The intensifying U.S.-China trade spat commanded market action
on Tuesday, after Trump threatened further tariffs on Chinese
goods.
(http://www.marketwatch.com/story/trump-seeks-additional-200-billion-in-tariffs-against-china-and-threatens-even-more-2018-06-18)
"Further action must be taken to encourage China to change its
unfair practices, open its market to United States goods, and
accept a more balanced trade relationship," Trump said in a
statement late Monday.
Beijing, meanwhile, threatened to impose tariffs on another
batch of U.S. products
(http://www.marketwatch.com/story/china-threatens-further-tariffs-on-us-products-as-trade-conflict-escalates-2018-06-19)
if the Trump administration follows through with a second round of
levies, the state-run Xinhua News Agency reported. China had
previously announced plans for retaliatory tariffs on U.S. goods
worth $34 billion, including soybeans, whiskey and electric
cars.
Read:Escalating U.S.-China trade spat comes at a bad time for
global growth, economist says
(http://www.marketwatch.com/story/escalating-us-china-trade-spat-comes-at-a-bad-time-for-global-growth-economist-says-2018-06-15)
Asian equities sold off on the worsening tensions, with the
Shanghai Composite sliding 3.8%, and the Shenzhen index tanking
5.8%. Inspired by the Asia session, stocks in the U.K. and the
broader European equity market moved sharply as well. On Wall
Street, the Dow Jones Industrial Average faced losing the gains
it's made in 2018.
(http://www.marketwatch.com/story/dow-futures-slump-more-than-300-points-as-fears-of-a-us-china-trade-war-ratchet-up-2018-06-19)
Still, the FTSE 100 did bounce back from an intraday loss of
1.1%, not least thanks to the ailing pound.
"It appears that the pound's own half a percent decline against
the dollar -- the currency's balking at the government's ongoing
Brexit battles -- helped the FTSE staunch its losses. Cable is now
under $1.318 for the first time in seven months, with sterling [is]
likely praying for the slightly whiff of hawkishness from the Bank
of England on Thursday," said Spreadex financial analyst Connor
Campbell in a note.
Revenue made overseas by multinational companies can be
bolstered by pound weakness and, in turn, help drive up shares of
those companies listed on the blue-chips benchmark.
On Monday, the U.K. House of Lords voted by 354 to 235 to give
members of parliament in the House of Commons a so-called
"meaningful vote" on the final deal that will take the U.K. out of
the European Union, or Brexit. The result is considered a defeat
for the U.K. government, led by Prime Minister Theresa May.
Lawmakers in the House of Commons were expected to debate the issue
again on Wednesday.
What are strategists saying?
"So far the trade war has been confined to trade. The fear,
however, is that it may spill over into the financial world.
Specifically, China could start selling off some of its massive
holdings of Treasury bonds. The country owns some $1.18 trillion of
Treasuries, or 30% of all foreign official holdings of Treasuries,
which is not to mention their holdings of agency bonds and others,"
said Marshall Gittler, chief strategist at ACLS Global, in a
note.
"Of course, to some degree it would be shooting themselves in
the foot to sell these bonds aggressively, because once the market
realized what was happening, bond prices would plunge. However,
U.S. mortgage rates would soar as a result, and China might feel
the pain was worth it to make middle-class U.S. voters sit up and
take notice," Gittler said.
Read:Trump's constant threats, reversals spur investors to see
him as the boy who cried 'Wolf!'
(http://www.marketwatch.com/story/trumps-constant-threats-and-reversals-spur-investors-to-see-him-as-boy-who-cried-wolf-2018-06-04)
Stock movers
Particularly mining stocks were dragged lower, as analysts have
said a trade war could lead to reduced demand for industrial and
precious metals. China is the world's largest buyer of copper.
Shares of copper producer Antofagasta PLC (ANTO.LN) closed down
1.8%, iron ore producers BHP Billiton PLC (BLT.LN) and Rio Tinto
PLC (RIO.LN) dropped 2.2% and 3.2%, respectively.
Mining stocks make up 87% of the basic materials sector on the
FTSE 100, and that sector carries a more than 9% weighting on the
benchmark, according to FactSet data.
Off the FTSE 100, shares of Debenhams PLC (DEB.LN) plunged 10.7%
after the department-store chain warned it expects fiscal 2018
pretax profit to miss expectations
(http://www.marketwatch.com/story/debenhams-warns-on-full-year-profit-2018-06-19)
as it faces increased competitor discounting and weakness in key
markets.
(END) Dow Jones Newswires
June 19, 2018 12:59 ET (16:59 GMT)
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