Gold bullion on american dollar banknotes close up
  • FTSE 100 closes up 18 points
  • Wall Street shares tank
  • Tobacco stocks rise after US regulator cracks down on e-cigarettes

5.10pm: FTSE 100 closes over 18 points higher

FTSE 100 index closed in positive territory on Friday, while US shares turned red as Middle East developments, sent most stock markets lower.

Tensions between the US and Iran have been ramped up due to a US airstrike that killed an Iranian military commander in Iraq.

Footsie added over 18 points on the day to close at 7,622, while the FTSE 250 plunged over 120 points to 21,988. On Wall Street, the Dow Jones Industrial Average plunged over 171 points at 28,963, while the S&P 500  shed around 14 points to 3,243.

Oil, however, unsurprisingly, surged amid events in Iraq, with US benchmark crude jumping 2.37% to US$62.63 a barrel.

“The Middle East developments have provided the necessary spark for a sell-off, although given how strong the market has been over the past few weeks the ‘dip’ may not last long,” surmised Chris Beauchamp, the chief market analyst at IG Index.

“Even if we do get an Iranian response, which is not certain, it is still not likely to turn into all-out war. The past 24 hours provide an object lesson for anyone who still hasn’t learnt the key dictum of the past decade – bull markets are much stronger than anyone thinks and don’t roll over simply because of one headline.

“While escalation is possible, it is more likely that the US-Iranian crisis of January 2020 will pass with little more than a few days of tension.”

Beauchamp notes that FTSE 100 is the one major winner of today, and it is the gain in oil majors BP (LON:BP.) and Shell (LON:RDSB) that accounted for the index ‘scraping’ into positive territory.

2.45pm: US stocks open sharply lower

US indices have, as expected, opened sharply lower while in the UK the Footsie has whittled away most of the morning’s losses.

The Dow Jones was down 224 points (0.8%) at 28,649 while the S&P 500 was 32 points (0.9%) in the hole at 3,226.

In the UK, the FTSE 100 was 12 points (0.2%) weaker at 7,592, with bid stock Just Eat PLC (LON:JE.) leading the recovery, with a 2.6% increase.

Also going well were tobacco stocks British American Tobacco PLC (LON:BATS) and Imperial Brands PLC (LON:IMB) after the US Food and Drug Administration outlawed certain flavours used in e-cigarettes.

“Yesterday’s announcement takes us a step closer to a predictable regulatory environment in a key marketplace, but focus must now shift to enforcement to ensure vapour market regulations are effective,” said Jack Bowles, the chief executive officer of BATS.

BATS was up 2.6% and IMPs 2.0%.

12.45pm: Sterling takes a bath

London’s blue-chips have recovered some of their poise, with the FTSE 100 halving its earlier loss as sterling slumps.

London’s index of heavyweight shares was down 20 points (0.3%) at 7,585, thanks in part to demand for big dollar earners such as British American Tobacco PLC (LON:BATS) and its sector peer, Imperial Brands PLC (LON:IMB), which are up 2.3% and 1.5% respectively, reflecting sterling’s slump to US$1.3074 from US$1.3127 overnight.

Joining the tobacco stocks on the up are oil giants BP PLC (LON:BP.) and Royal Dutch Shell (LON:RDSB); the stocks were up 1.7% and 1.5% respectively after the price of Brent crude for March delivery jumped US$2.57 to US$68.82 a barrel following the assassination by a US drone of top Iranian general Qassim Soleimani.

“It’s hard to overstate the geopolitical importance of Friday’s assassination of Qassim Soleimani, architect of Iran’s external military activity for more than 20 years and perhaps the most powerful man in the country after the Supreme Leader,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

“ Iran right now is reeling from the assassination, but the leadership is dominated by hardliners and the question is how, not whether, they will respond. For markets, the key issue is the impact of the Iranian response on oil prices.

“Our base case here is that a full-blown war between the US and Iran is unlikely, though we appreciate the old adage that nothing brings a country together more effectively than an external threat, and Iran’s government right now is extremely unpopular. Sanctions imposed by the US have crushed the economy and driven up inflation, triggering protests last month in which several hundred protesters were killed by army and police. It is reasonable to think, then, that the leadership will seek to use the assassination to divert attention from the grim economy but Iran’s leaders probably aren’t suicidal; we doubt they will take action that will trigger air strikes on Tehran. The infrastructure of the oil sector, though, is a likely target in the event of tit-for-tat escalation,” Shepherdson speculated.

11.00am: Footsie submerges a bit more as traders eye weak US open

As the US open draws closer so UK blue-chips are submerging deeper into the red.

Entering the last hour of the morning, the FTSE 100 was down 44 points (0.6%) at 7,560.

“Stock markets have been rattled by the news that a US airstrike in Iraq has killed an Iranian military commander. Relations between the US and Iran have been tense in recent months, and the relationship is now under further pressure. Traders are fearful of a retaliation from Iran, hence why stocks are lower this morning,” reported CMC’s David Madden.

“We are expecting the Dow Jones to open 260 points lower at 28,608 and we are calling the S&P 500 down 32 points at 3,225,” he added.

Corporate news flow has been sporadic but there has been a steady stream of macroeconomic data to keep the economists occupied.

House purchase mortgage approvals rose to 65,000 in November from 64,700 in October, above the consensus forecast of 64,500.

Net consumer credit rose by £0.6bn in November, which was below the average of the previous six months and the consensus, both of which were £1.0bn.

November’s monetary indicators imply that GDP growth likely will regain some momentum in the first half of this year. Year-over-year growth in the MPC’s preferred measure of broad money—M4 excluding intermediate other financial corporations—rose to a 19-month high of 4.0% in November, from 3.5% in October. “Households’ broad money holdings now are rising at the fastest rate in real terms since March 2017, consistent with a strong recovery in year-over-year growth in households’ spending ahead. In addition, the process of rolling over the stock of fixed-rate mortgages looks set to continue to support households’ disposable incomes modestly. The effective interest rate for all new mortgages in November, 1.87%, was a hefty 52bp [52 basis points – just over half a percentage point] lower than the effective interest rate for the outstanding stock,” said Pantheon Macroeconomic.

9.45am: Construction activity declines for the eighth month in a row

The IHS Markit/CIPS UK construction purchasing managers’ index (PMI) declined again in December.

The PMI is based on a system whereby a level below 50 indicates a decline in activity, and the December reading clocked in at 44.4, down from 45.3 in November. It was the eighth month in a row that the index came in below 50.0.

“December data suggested that the UK construction sector limped through the final quarter of 2019, with output falling in all three major categories of work. Brexit uncertainty and spending delays ahead of the General Election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity,” said Tim Moore, the economics associate director at IHS Markit.

“Civil engineering saw its sharpest decline for more than ten years and remained the worst-performing area of construction work, followed by commercial development. House building has been the most resilient category in recent months, but still declined overall during December,” he added.

Duncan Brock, the group director at the Chartered Institute of Procurement & Supply (CIPS) said the construction sector “crumbled again” in December.

“As the General Election drew near, construction firms saw a spike in confidence believing indecision and political deadlock would shortly come to an end; however, the embedded frailties in the sector are laid out for all to see.

“Construction companies are still struggling to fill the skills gap left by the last recession and have had a bumpy ride since the referendum in 2016. It may take years to salvage the losses of the last three years, even if all obstacles are magically removed from the sector’s path to recovery. Whilst suppliers’ delivery times are on the verge of improving and input price inflation slowed to its lowest level since 2010, this will be cold comfort as the sector continues with one of its worst overall performances in the last ten years,2 he added.

The release of the PMI data did nothing to boost a flagging Footsie, which was down 31 points (0.4%) at 7,573.

9.00am: Housebuilders slip

Housebuilders were on the back foot, generally falling by more than the benchmark index, following the latest house price index from the Nationwide building society.

The index rise 0.1% (seasonally adjusted) in December and was up 1.4% year-on-year, with the average selling price down to £215,282 from November’s £215,734.

“Annual UK house price growth edged up as 2019 drew to a close, with prices 1.4% higher than December 2018, the first time it been above 1% for 12 months,” observed Robert Gardner, the Nationwide’s chief economist.

“Looking ahead, economic developments will remain the key driver of housing market trends and house prices. Much will continue to depend on how quickly uncertainty about the UK’s future trading relationships lifts as well as the outlook for global growth.

“Overall, we expect the economy to continue to expand at a modest pace in 2020, with house prices remaining broadly flat over the next twelve months,” he added.

Elsewhere in the housing sector, Bovis Homes Group PLC (LON:BVS) revealed it will change its corporate moniker to Vistry Group after completing the acquisition of parts of the Galliford Try PLC (LON:GFRD) business. The shares were off 3% in early deals.

8.35am: Oil stocks wanted, airline stocks friendless, as crude surges following Iran attack

Despite heavily-weighted oil shares getting off to a flyer on Friday morning, the FTSE 100 index opened lower in the wake of the US attack on Iran.

London’s index of leading shares was down 24 points, or 0.3%, at 7,580, despite oil giants BP PLC (LON:BP.) and Royal Dutch Shell (LON:RDSB) rising 1.7% and 1.2% respectively as crude prices headed north following developments in the Middle East.

“Reversing Thursday’s New Year bounce, the markets were uniformly in the red on Friday after the US killed the hugely influential Iranian general Qassem Suleimani.

“In a move that also caused World War III and Franz Ferdinand – Archduke, not indie band – to trend on Twitter, the death of Suleimani via a drone strike ordered by Donald Trump prompted Iran to promise ‘severe revenge’ for the attack,” reported Connor Campbell at Spreadex.

“Though Suleimani may be unknown by many in the West, some political analysts have likened him to a US vice president in terms of profile, while he has previously been described as the ‘single most powerful operative in the Middle East’. Important to bear in mind when considering the kind of response that could be expected from Iran (a nation, remember, that has major ties to Russia and China),” Campbell continued.

On the futures markets, the price of Brent crude rose more than 3% to US$68.32 a barrel, which accounts for why airline stocks easyJet PLC (LON:EZJ), International Consolidated Airlines (LON:IAG) and TUI AG (LON:TUI) were among the biggest fallers on the Footsie, shedding between 1.5% and 2% as fuel costs rose.

Just 10 Footsie stocks were on the rise but they included retailer Next PLC (LON:NXT), which was 1% higher at 7,024p after it increased its full-year profit guidance following a successful Christmas trading period.

“One fly in the ointment around the numbers is retail’s contribution, which has dipped 4.6% in terms of sales in the year to date, while changes to Corporation Tax payments means that the company will need to factor in a (manageable) £70 million hit. This will have the effect of increasing net debt in the shorter term, although the company’s hard-earned reputation for careful balance sheet management will likely see it through without drama,” commented Richard Hunter, the head of markets at interactive investor.

“Indeed, Next’s prodigious cash generation will also result in a further return to shareholders which, depending on the level of the share price, will either come in the form of a share buyback programme or as a special dividend. In either event, it will represent proof of a business with its finger on the pulse. Further out, the company has also issued some reassuring words promising to maintain the growth momentum,” Hunter added.

Proactive news headlines:

Caledonia Mining Corporation Plc (LON:CMCL) has announced it is increasing its dividend thanks to an improved financial performance, driven by higher production and better gold prices. The quarterly dividend increases by 9.1% to 6.875 cents per share. At the same time, the AIM-quoted miner noted that it expects to commission the development of a Central Shaft at the underground Blanket mine in Zimbabwe and that it will work towards a production target of 80,000 ounces of gold per year by 2022.

Eco Atlantic Oil & Gas PLC (LON:ECO) (CVE:EOG) has described Tullow Oil’s Carapa discovery, offshore Guyana, as “very important” and said that it is expecting 2020 to be a significant year. Success in Tullow’s non-operated exploration well – which confirmed high quality, light sweet crude albeit in a smaller than expected section of net pay – comes after a disappointing outcome in the lab for 2019’s Joe and Jethro discoveries (which were found to be lower grade heavy and sulphurous crude).

Anglo African Oil & Gas PLC (LON:AAOG) has given a sceptical response to a revised proposal from Jub Capital, the investment manager focused on smaller companies. Jub made its initial proposal to acquire newly issued Anglo African (AAOG) shares plus the shares currently held by corporate-financier RiverFort and its associates on the last day of 2019, sending Anglo African’s shares soaring. Jub Capital has now tweaked its proposal, offering to pump £100,000 into Anglo African by subscribing for 10mln new shares at a penny a share; previously, the company had previously offered to subscribe for 30mln shares.

Polarean Imaging PLC (LON:POLX), the medical imaging technology company, with a proprietary drug-device combination product, announced late on Thursday that it was notified on 31 December 2019 that the company’s CEO, Richard Hullihen, has purchased a total of 347,100 ordinary shares in three transactions: 100,000 at 20.22p each; 100,000 at 20.02p each; and 147,100 at 23.87p each. Following the transactions, the group added, Hullihen holds a beneficial interest in 2,928,899 ordinary shares, representing 2.56% of the company’s issued share capital with voting rights.

Primary Health Properties PLC (LON:PHP) said late on Thursday that it intends to pay four interim dividends in equal instalments in 2020, with the first quarterly interim dividend of 1.475 pence per ordinary share to be paid on 21 February 2020 to shareholders on the register on 10 January 2020.  The group said the dividend will comprise a Property Income Distribution (PID) of 1.275p per share and an ordinary dividend of 0.2p per share, and the company will be offering a scrip alternative with this dividend.

Impax Environmental Markets PLC (LON:IEM) said late on Thursday that it had sold a further 600,000 ordinary shares at a price of 330.0p per share from treasury. It added that, together with a share disposal announced earlier on Thursday, it sold a total of 850,000 ordinary shares from treasury, both at a premium to the group’s prevailing net asset value.

Diversified Gas & Oil PLC (LON:DGO), the US-based owner and operator of natural gas, natural gas liquids, oil wells and midstream assets, announced late on Thursday that, in accordance with the terms of its share buyback programme, it has purchased 123,638 ordinary shares in the company at a volume-weighted average price of 106.771p per share through broker Stifel Nicolaus Europe, with the shares acquired, in due course, to be cancelled.

Metal Tiger PLC (LON:MTR), the AIM-listed investor in strategic natural resource opportunities, announced on Friday that, under its share buyback programme, its broker Arden Partners has purchased 3,600,000 shares in the company at a volume-weighted average price per share of 1.385p.

6.40am: US airstrikes on Iran make equity investors nervous

US airstrikes on Iran have hit equity market sentiment and boosted the appeal of gold and oil futures.

After adding 62 points yesterday to close at 7,604, the FTSE 100 was expected to give back some of those gains this morning and open around 29 points lower at 7,575.

According to reports, the US airstrikes on Baghdad’s international airport killed Iran’s top general, Qassem Soleimani.

The US Defense Department said Soleimani was killed because he was “actively developing plans to attack American diplomats and service members in Iraq and throughout the region”.

US futures contracts for the Dow Jones and S&P 500 indices plunged after news of the military action, and both indices are currently expected to give back the bulk of yesterday’s handsome gains; the Dow added 330 points yesterday to finish at 28,869 and the S&P 500 rose 27 points to close at 3,258.

Asian markets this morning have been weak, with the Nikkei 225 in Tokyo down 181 points at 23,657 and the Hang Seng index off 81 points at 28,462.

Gold and oil prices, on the other hand, have been hardening with the former up US$16.60 to US$1,544.70 an ounce while Brent crude, although off the top this morning, was US$1.92 more expensive at US$68.17 a barrel.

In the UK, the post-Christmas lull is expected to continue but should see the start of the wave of retailers giving Christmas trading updates.

As is traditional, Next PLC (LON:NXT) is the first out of the blocks.

In a preview of the update, Russ Mould, investment director at AJ Bell noted that Next was a stunning performer in 2019, as its shares rose by more than two-thirds to top the £70 mark for the first time in four years, showing “that retailers with the right product at the right price point can thrive, especially if they have a strong multi-channel offering, via physical stores, click and collect and online.”

However, one potential snag going forward could be a slowdown in spending for the January sales, with Barclaycard previously reporting that spending in the period will fall by £200mln from a year ago amid growing concerns about the impact of fashion on the environment.

In the US, economists will be focusing on manufacturing data, with both the US manufacturing ISM and PMI readings expected on the final day of the week.

Back in the UK, the construction sector will deliver its first PMI reading of the year, giving some clarity on how 2020 could pan out for the industry.

Significant announcements expected on Friday:

FOMC meeting minutes

Trading update: Next PLC (LON:NXT)

Economic data: UK construction PMI; US ISM manufacturing; US manufacturing PMI

Around the markets:

  • Sterling: US$1.3107, down 0.3 cents
  • 10-year gilt: 0.793%, down 3.37 basis points
  • Gold: US$1,544.70 an ounce, up US$16.60
  • Brent crude: US$68.17 a barrel, up US$1.92
  • Bitcoin: US$7,204, up US$230

City headlines:

  • Financial Times
  • The UK chip designer Imagination Technologies has signed a new licensing deal with Apple.
  • Volkswagen is negotiating an out-of-court settlement for 400,000 German customers affected by the carmaker’s manipulations of diesel engine emissions tests.
  • US regulators have introduced planned restrictions on some flavoured e-cigarettes as they attempt to rein in an “epidemic” of teenage vaping.
  • The Daily Telegraph
  • British factory activity dropped in December at one of its fastest rates since Europe’s sovereign debt crisis of 2012, according to IHS Markit’s purchasing managers’ index survey.
  • Aspinal of London plunged further into the red last year as the luxury leather goods firm grappled with a surge in costs, its latest accounts showed.
  • Embattled Tullow Oil’s stocks tumbled more than 8% after it revealed disappointing results from early testing of a key well in Guyana.
  • Holidaymakers have been blocked from exchanging currency online and from collecting prepaid cards, after Travelex was forced to take its site offline due to a virus.
  • The Times
  • China has halted listings on a recent landmark scheme between the Shanghai and London stock exchanges amid signs of increasing political tensions and the fallout from protests in Hong Kong.
  • The UK music streaming market has exceeded £1 billion for the first time, with the total spent on subscription services like Spotify and Deezer more than 30 times higher than in 2010.
  • Footfall across Britain’s shopping destinations declined over the crucial post-Christmas trading period even as retailers slashed prices to lure customers.
  • Norway’s state-backed oil giant Equinor has admitted that it is under mounting pressure from shareholders to invest more in renewable energy.
  • Daily Mail
  • Airbus has overtaken Boeing to become the world’s largest plane manufacturer.
  • Allianz is starting the decade as the UK’s second-largest general insurer after completing a pair of deals worth £820 million.
  • A third law firm Nelsons is pursuing claims against Hargreaves Lansdown in the wake of the Woodford investment scandal.