Pub chain and easyJet lead gainers off main index

China trade concerns back on the agenda

Concerns about the stalled US-China trade talks are creeping back into the markets pulling down indices across Europe. On Wall Street, all three major indices closed lower as companies most exposed to China shouldered significant losses. The US side is reportedly considering how to address China’s requests to relax restrictions on Huawei’s trade in the US and earlier this week President Trump resumed his forceful rhetoric on China trade. The DAX, which is more exposed to China trade than other European gauges, has lost 0.9% this morning.

The FTSE is also heading lower with the biggest declines sustained by miners, oil producers and utilities.  Metals producers are in a particularly weak position when it comes to China trade issues because the country buys more than half of most of the world’s base metals.

Pub chain and easyJet lead gainers off main index

The runaway gainer on the FTSE 250 is pub owner EI Group which gained nearly 40% this morning after the company accepted a GBP1.3 billion takeover from Stonegate Pub, the owner of the Slug & Lettuce chain.  Budget airline Easyjet which has last month lost its position in the FTSE 100 is also gaining ground as it reported an 11% increase in revenue in the third quarter.

Sterling stabilises as dollar loses ground

Having dipped below $1.24 on Wednesday sterling is slightly more stable this morning, trading at $1.2474. However, the move higher has more to do with some weakness in the dollar than any reasons for the pound to firm. The dollar is weaker against most majors, dragged down partially by lower yields on Treasuries and renewed concerns over the China-US trade tensions. At home, UK economic data is not providing any reason for the pound the firm but on the upside, most of the negative comments about a no-deal Brexit and potential autumn election now seem to be priced into the market, giving the pound a slight breather.

Anglo American cuts diamond output forecast

Diamonds are not turning out to be investors' best friends at Anglo American this year.

Weaker demand for the precious gems and disruptions created by a transition to underground mining at a key pit in South Africa have triggered a disappointing production downgrade at De Beers. 

Iron-ore output in South Africa has also come up short, combining with the poorer diamonds performance to take the shine off a strong showing from the Minas Rio iron-ore project in Brazil.

Much of Anglo American's longer-term prospects hinge on demand from big commodities importers like the US and China. Today's diamond downgrade shows that trade tensions between the world's two biggest economies are really starting to bite.

SSE continuing to haemorrhage customers

Thankfully, there are no more nasty shocks for investors in today's quarterly update from SSE. The power company still expects to pay out an 80p dividend this year, which implies its stock is yielding around 6.9%.

SSE's myriad problems haven't gone away though, which explains why investors aren't exactly diving in.

The retail energy business is continuing to haemorrhage customers, with another 70,000 departing in the three months between April and June.

The generation business has been hurt by lower wind speeds and the transmission business still faces the threat of nationalisation, should Brexit wrangling trigger an election that hands Jeremy Corbyn the keys to No.10.

Offshore wind power could offer SSE a tailwind as the UK greens its economy. To that end, investors will be keeping a close eye on the outcome of looming project auctions, for which SSE is sure to throw its hat in the ring.

Ryanair's woes have eased pressure on easyJet

EasyJet has shaken off downgrade fears sparked by a recent profit warning from rival Lufthansa with a resilient revenue performance that puts it on track to meet its annual forecasts.

Management is successfully offsetting pressure on demand by cutting costs and squeezing an optimal amount of revenue out of each passenger.

EasyJet appears to be benefiting from a recent contraction in industry flying capacity, which offers airlines more scope to raise ticket prices because there aren't as many seats available to customers.

The capacity benefit is expected to improve for EasyJet because archrival Ryanair has been forced to cut flights due to delays receiving the still-grounded Boeing 737 MAX aircraft.

Ryanair's woes have eased pressure on EasyJet to grow capacity itself and, sure enough, management has indicated today that EasyJet only intends to add 17 aircraft to its fleet in 2020, falling to just three additions in 2021.

To add insult to injury, EasyJet has dealt another blow to Ryanair by poaching Peter Bellew, who has been operations head at the Irish carrier for less than two years.