Ex-Divs, US-North Korea Tensions Weigh On FTSE

Stocks in London closed down Thursday, as investors were unable to shake concerns over the escalating tensions between the US and North Korea, and big name stocks going ex-dividend weighed on the FTSE 100.

The deteriorating relations between Washington and Pyongyang were weighing on investor sentiment for a second day, with investors continuing to move to safe haven assets such as gold and silver, as North Korea said it plans to fire rockets near the US territory of Guam soon as a "crucial warning", going so far as to give a time frame of mid-August.

Concerns have grown over North Korea's nuclear weapons programme and missile tests, after the US intelligence community determined that North Korea had successfully produced a miniaturised warhead that can fit inside its missiles, and on new UN sanctions against North Korea.

US President Trump said earlier this week that further threats from North Korea would be met with "fire and fury".

US Secretary of State Rex Tillerson defended Trump's remarks, which he argued send a clear message to North Korea that the US will defend itself and its allies. "What the President is doing is sending a strong message to North Korea in language that Kim Jong-un can understand, because he doesn't seem to understand diplomatic language," Tillerson said.

But North Korea shot back on Thursday. Trump had "let out a load of nonsense about 'fire and fury', failing to grasp the ongoing grave situation", General Kim Rak Gyom, commander of the Strategic Force of the Korean People's Army said in a statement, according to the state-run news agency KCNA.

"Sound dialogue is not possible with such a guy bereft of reason and only absolute force can work on him," Kim said.

The FTSE 100 index closed down 1.4%, or 108.12 points, at 7,389.94. The FTSE 250 ended down 0.9%, or 175.61 points, at 19,699.42, and the AIM All-Share closed down 0.4%, or 3.82 points, at 999.63.

The BATS UK 100 ended down 1.5% at 12,549.07, the BATS 250 closed down 0.9% at 17,905.64, and the BATS Small Companies ended 0.3% lower at 12,209.83.

"Not only is the war of words (let's hope their spat remains verbal) between Trump and Kim Jong-un weighing on the FTSE, but also the disappointment of June 9 month high UK trade deficit," said Spreadex's Connor Campbell.

The UK trade deficit widened in May from the previous month, figures from the Office for National Statistics showed Friday.

The total trade deficit increased by GBP1 billion to GBP3.1 billion in May, reflecting an increase in imports of goods. The visible trade deficit widened to GBP11.86 billion from GBP10.59 billion in April. The expected level was GBP10.85 billion.

In the three months to May, the trade deficit including goods and services rose to GBP8.9 billion from GBP6.9 billion in the three months to February.

Exports climbed 2.1%, while imports gained only 0.8%. This has caused the total trade deficit to widen, driven predominantly by increased imports of goods from non-EU countries.

The pound had recovered some ground earlier Thursday following better than expected UK industrial data, and was quoted at USD1.2982 at the London equities close, compared to USD1.3002 at the same time on Wednesday.

UK industrial production grew more than expected in June largely due to higher oil and gas output, data from the Office for National Statistics revealed.

Industrial output expanded 0.5% on a monthly basis, after staying flat in May. Output was forecast to grow 0.1%. The monthly growth was mainly driven by a 4.1% rise in mining and quarrying as a result of higher oil and gas production.

The tensions between the US and North Korea were also weighing on stocks in mainland Europe, with the CAC 40 in Paris ending down 0.6%, while the DAX 30 in Frankfurt ended down 1.2%.

The euro stood at USD1.1749 at the European equities close, compared to USD1.1734 at the close on Wednesday.

Stocks in New York were lower at the London equities close. The Dow Jones Industrial Average was down 0.5%, the S&P 500 index down 0.8% and the Nasdaq Composite down 1.1%.

"The Dow Jones plunged more than half a percent after the bell, wiping off 130 points to leave the index teetering just above 21,900. That's its worst price since the end of July, raising questions of whether this is the end of the Dow's recent record run, or just a brief diversion until the US/North Korea situation cools and a parade of proper, Grade A data arrives (for example, next week is looking pretty jam-packed)," Campbell said.

In US economic news Thursday, the Labor Department released a report showing an unexpected decrease in US producer prices in the month of July.

The Labor Department said its producer price index for final demand edged down by 0.1% in July after inching up by 0.1% in June. Economists had expected another 0.1% uptick. The report said food prices came in unchanged in July after climbing by 0.6% in June, while energy prices fell by 0.3% after sliding by 0.5% in the previous month.

Excluding food and energy prices, core producer prices still dipped by 0.1% in July after creeping up by 0.1% in June. Core prices had been expected to rise by 0.2%. The drop in prices was primarily due to the decrease in prices for services, which fell by 0.2% in July after rising by 0.2% in June.

Gold prices continued to rally amid the tensions Thursday, with an ounce of the precious metal quoted at USD1,285.32 an ounce against USD1,273.94 on Wednesday. In the FTSE 100, gold miners Randgold Resources and Fresnilloended among the best performers, up 1.3% and 0.6%, respectively.

"The safe haven status of the asset means that gold is in high demand, and to top it off, the worse than expected PPI numbers from the US gave the metal an additional jolt higher," said CMC Markets analyst David Madden.

"The prospect of an interest rate hike from the Federal Reserve this year is looking less likely on the back of the PPI figures. Traders will be watching out for the CPI numbers from the US tomorrow," Madden said.

Brent oil was quoted at USD52.46 a barrel at the close, compared to USD52.25 at the same time the prior day.

In London, the FTSE 100 was dragged lower as a number of significant stocks including the largest by market capitalisation, Royal Dutch Shell, went ex-dividend. BP, Anglo American, and BT were among those that went ex-dividend, meaning new buyers no longer qualify for the latest dividend payouts.

In the FTSE 100, Coco-Cola HBC was the top FTSE 100 performer, closing up 9.2%. The soft drinks bottling company reported an increase in profit and revenue in the first half of 2017, driven by volume growth and margin improvements. Net sales revenue for the first half rose 5.6% to EUR3.21 billion from EUR3.04 billion.

Worldpay PLC was another FTSE 100 gainer, up 2.4%, extending gains from Wednesday when it formally agreed a GBP9.3 billion takeover by US rival Vantiv.

In the FTSE 250, Greggs closed as the best performer, up 5.1%, after Berenberg upgraded the bakery products retailer to Buy from Hold.

At the other end of the index, Ibstock closed among the FTSE 250's worst performers, down 4.6%, despite reporting a rise in pretax profit to GBP38.9 million for the first half of 2017 from GBP37.9 million the prior year. However, the company's performance in the US remained level year-on-year as it noted a slowdown in activity.

"In the US, we anticipate that our performance in the second half of the year will reflect the weaker market conditions evident since the spring," the company said.

Go-Ahead closed down 3.1%, after the transport operator said its joint venture, Govia, had been unsuccessful in its bid to win the new West Midlands rail franchise. Govia, in which Go-Ahead holds a 65% stake with the remaining 35% held by Keolis, has operated the West Midlands franchise since 2007. Govia will continue to operate the current contract until December.

In the economic calendar on Friday, Germany's consumer price index is at 0700 BST, while the same from France is at 0745 BST. In the US, the consumer price index and the Baker Hughes oil rig count are at 1330 BST and 1800 BST, respectively.

In the UK corporate calendar, Old Mutual and TT Electronics release half-year results, while Volution Group issues a trading statement.