Stocks End Mixed After Subdued Wall Street Start

Stocks ended mixed on Monday, as investors remained cautious amid rising tensions between the US and North Korea, with the subdued start of the week for Wall Street eroding gains made by the UK's blue-chip index.

The FTSE 100 index closed down 0.1%, or 5.1 points, at 7,318.88. The FTSE 250 ended up 0.1%, or 20.44 points, at 19,646.90, and the AIM All-Share closed up 0.4%, or 3.66 points, at 1,002.95.

The BATS UK 100 ended down 0.2% at 12,432.27, the BATS 250 closed flat at 17,829.60, and the BATS Small Companies ended 0.2% lower at 12,133.98.

"Wall Street has begun the week on a downbeat note, and as a result the morning gains made by the FTSE 100 are ebbing away as the close looms, with the 7,300 level coming under pressure once again," said IG analyst Chris Beauchamp.

"August's reputation as the most difficult month for stock markets remains unbroken so far, with an apparent combination of light volumes, disenchantment with a lack of change in Washington and some broader concerns about valuations finally coming together to give the downside some traction," Beauchamp added.

British households remained pessimistic about their financial outlook in August, while their financial pressures somewhat softened, results of a survey by IHS Markit and financial information provider Ipsos Mori revealed.

The seasonally adjusted household finance index rose to 43.5 in August from July's three-year low of 41.6. However, a score below 50 suggests pessimism regarding finances among the UK households.

The index measuring the outlook for financial well-being over the next 12 months, edged up to 47.2 in August from 47.1 in the prior month.

The proportion of households expecting a rise in the Bank of England base rate during the next 12 months was 33% in August, down sharply from 48% in July.

"The sharp drop in the number of people expecting a Bank of England base rate rise in the near future provides an indication that households expect lending conditions to remain accommodative," Sam Teague, economist at IHS Markit said.

Elsewhere, the average asking price for a house in the UK was down 0.9% month-on-month in August, property tracking website Rightmove said. That follows a 0.1% increase in July. On a yearly basis, house prices climbed 3.1%, up from 2.8% the previous month.

The pound was quoted at USD1.2899 at the London equities close, firm from USD1.2846 at the same time on Friday

In mainland Europe, the CAC 40 in Paris ended down 0.5%, while the DAX 30 in Frankfurt ended 0.8% lower.

The German economy is set to continue strong momentum in the current quarter, Bundesbank said in its monthly report. The central bank said GDP growth in the current year could even be somewhat stronger than expected in the June projection. The bank had earlier forecast 1.9% growth for 2017.

"The markets remained in a bad mood this Monday, investors unwilling to indulge in any positivity before they get a feel for the big events littered across the rest of the week," said SpreadEx analyst Connor Campbell.

Federal Reserve Chair Janet Yellen is scheduled to speak at the Fed's economic policy symposium in Jackson Hole, Wyoming, and traders are likely to keep an eye on her remarks for clues about the outlook for monetary policy. The annual event brings together several central bank officials, including European Central Bank President Mario Draghi.

"The EUR/USD has been losing ground this month, and seeing as Mario Draghi, the head of the European Central Bank, won't be talking about tapering the stimulus package at the Jackson Hole symposium which starts on Thursday, the single currency may find it tough to find buyers," said CMC Markets analyst David Madden.

The euro stood at USD1.1815 at the European equities close, rising from USD1.1740 at the close on Friday.

Stocks in New York were struggling to move into positive territory at the London equities close. The DJIA and the S&P 500 index were both flat, and the Nasdaq Composite was down 0.3%.

"There wasn't exactly anything new to prompt this negative display from the US markets – but nor does there need to be. America is engulfed in two major storylines at the moment: one, the US/North Korea tensions, seemingly set to ramp up again as the former pushed ahead with military exercises in South Korea; and two, the ongoing chaos of Trump's domestic agenda, with Steve Bannon the latest high profile casualty of the orange one's loyalty-free tenure," said SpreadEx's Campbell.

The US and South Korea began on Monday their annual 11-day joint military drills despite weeks of escalating threats from North Korea, amid warnings from China that this will not help ease tensions with Pyongyang.

The Ulchi Freedom Guardian exercise will bring together as many as 50,000 South Korean soldiers and approximately 17,500 US service members for a computer simulation of war on the Korean Peninsula.

The war games take place every year and invariably anger Pyongyang, which views such drills as a rehearsal for an invasion. China urged the three countries to safeguard efforts to ease tensions in the Korean Peninsula, as a government spokesperson said China does not believe joint exercises will ease the current tension.

Meanwhile, Steve Bannon, former chief strategist to Trump, on Friday told journalists he will "go to war" for the president and returned to right wing website Breitbart News after leaving his job at the White House. Bannon took over Trump's campaign about 10 weeks before the election last November and amped up nationalist rhetoric and themes.

"Both of these situations are serious enough that their ongoing existence – one threatening global stability, the other indefinitely delaying Trump's tax and infrastructure plans – is enough to cast a cloud over the markets," Campbell added.

Trump is scheduled to deliver a prime-time address to the nation on his administration's strategy for Afghanistan on Tuesday at 0200 BST.

Back in London, Shire ended as the worst performer in the blue-chip index, down 3.6%, after it said Chief Financial Officer Jeff Poulton will leave the company at the end of next year to take up a role at Boston start-up Indigo Ag Inc.

Shire will begin a search for Poulton's successor, and during the transition period he will remain on the executive committee and the board of directors.

British Land ended down 1.0%, after HSBC cut its rating to Hold from Buy.

Imperial Brands ended up 0.8%, as RBC Capital raised its rating to Outperform from Sector Perform.

At the other end, educational publisher Pearson ended up 1.5% at 614.31 pence, as Jefferies raised its target price to 523.0p from 511.0p

In the FTSE 250, Hikma Pharmaceuticals ended as the best performer, up 4.4% at 1,168.71 pence. Jefferies raised the stock to Hold from Underperform, while Morgan Stanley cut its target price to 1,359.0p from 1,600.0p.

Brent oil was firm, as traders await the completion of a meeting between OPEC and non-OPEC members. A barrel was quoted at USD51.84 at the close from USD51.75 at the same time on Friday.

"Major oil producers are meeting today in order to discuss compliance with the agreed production cut. In July, compliance with the production freeze fell to 75%, and this tells us that oil producing nations are more interested in their own needs, rather than that of the group," said CMC's Madden.

Meanwhile, gold continued to benefit as a 'safe haven' after reaching its highest level since November 2016 on Friday, and continued on its upward trend. An ounce of the precious metal was quoted at USD1,290.39 against USD1,289.67 the same time on Friday.

"The Chinese central bank injected CNY50 billion into the country's financial system in a bid to beef up the banking system. China's growth rate has cooled in recent years but the Beijing authorities are keen to intervene whenever they feel it is necessary. The cash injection pushed up the price of base metals, and in turn the share price of BHP Billiton, Rio Tinto and Antofagasta are higher today," said CMC's Madden.

The FTSE 350 mining sector index closed 0.4% higher, with BHP up 0.7%, Rio up 0.5% and Antofagasta up 1.3%. Anglo American ended 1.2% higher.

The corporate calendar on Tuesday is headlined by annual results from BHP, while Antofagasta releases interim results. Half-year results are also due from housebuilder Persimmon, Cairn Energy, oilfield services firm John Wood Group, Hostelworldand industrial services provider Cape. Kantar Worldpanel also releases its latest grocery market share data at 0800 BST.

The economic calendar on Tuesday sees UK public sector net borrowing at 0930 BST and the CBI industrial trends survey at 1100 BST. The ZEW survey of economic sentiment in Germany and the wider Eurozone are both at 1000 BST.

The afternoon turns to the US, with the Redbook index at 1355 BST, housing price index at 1400 BST, the Richmond Fed manufacturing index at 1500 BST, and the API weekly crude oil stock at 2130 BST.