LONDON MARKET CLOSE: Apple's China Warning Sends Stocks Lower

LONDON (Alliance News) – Stocks in London finished broadly lower on Thursday, as strong performance from retailers failed to offset the effects of Apple’s revenue warning. “European markets are taking their lead from the other side of the pond, with yet another downturn at the US open pulling the likes of the FTSE 100 back into the red after it had recovered from a bearish open this morning,” said IG Senior Market Analyst Joshua Mahony. “Unfortunately, while many had hoped improved sentiment surrounding US-China talks would provide a basis for further upside in global stocks, we have seen the trade war hurt demand for Apple products.”

The FTSE 100 ended down 0.6%, or 41.57 points, at 6,692.66, while the FTSE 250 closed 0.8% lower, or 147.79 points, at 17,438.91. The AIM All-Share finished up 0.2% at 861.85. The Cboe UK 100 ended down 0.4% at 11,374.21, while the Cboe UK 250 finished 0.4% lower at 15,611.84 and the Cboe UK Small Companies ended 0.2% higher at 10,920.68.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed down 1.7% and 1.6% respectively. Stocks in New York were in the red at the London equities close, with the DJIA down 1.5%, the S&P 500 index down 1.0%, and the Nasdaq Composite 1.3% lower. This comes after Nasdaq constituent Apple, after the New York close on Wednesday, uncharacteristically issued a sales warning amid weak trading conditions in China.

Shares were down 8.2% on Thursday. California-based Apple now expects first-quarter revenue of about USD84 billion, down from its prior estimate of between USD89 billion to USD93 billion. Apple also now expects gross margin of about 38%, at the lower of a previously guided range of between 38.0% and 38.5%.

Apple, describing the quarter as “challenging”, said it did not expect the magnitude of the economic deceleration in emerging markets, particularly in China. The company said most of its revenue shortfall relative to guidance, and over 100% of year-over-year worldwide revenue decline, occurred in China across the iPhone, Mac and iPad products. “The major concern is the miss largely came in China, with the question now whether this profit warning was specific to Apple, specific to a slowing Mobile Phone upgrade cycle, or a more widespread cyclical slowdown,” said Neil Goddin, manager of the Kames Global Equity Fund.

“The coming days and weeks will tell us more about the Apple downgrade, so if we see further warnings across multiple sectors (luxury goods and industrials would be obvious bellwethers) then markets will likely continue to trade lower,” continued Goddin. “Yes they have been weak, but they could go a lot lower if we truly are entering a meaningful slowdown.” Industrial and mining stocks were suffering on fears of a slowdown in China.

Steelmaker Evraz ended down 7.1%, miner Antofagasta finished down 2.7%, and Glencore 2.8% lower. Burberry was also among the worst performers in the FTSE 100, ending the day down 5.0%. The trench coat maker’s fall came despite an upbeat session for UK retailers after Next reported a steady performance over the festive trading period.

CMC Markets UK’s David Madden said Burberry’s decline suggests investors may be fearful China’s middle class could lose their appetite for Western luxury brands. Next, the first London-listed retailer to reveal its performance for the important festive trading period, closed 4.2% higher, the best FTSE 100 performer. The firm said strong sales in the three weeks prior to Christmas, along with a good half-term holiday week at the end of October, made up for disappointing sales in November.

For the period from October 28 to Saturday last week, Next recorded full-price sales growth of 1.0% on the year-earlier period, with online sales rising 15% and retail sales declining 9.2%. Total full-price sales including interest income for the period grew 1.5% on the prior year, in line with the company’s September guidance. Though sales were in line, lower margin products and increased online trading meant Next nudged its pretax profit outlook for the year ending late January lower to GBP723 million, down 0.6% from previous guidance of GBP727 million.

Clothing, food, and homeware retailer Marks & Spencer ended up 1.3%, while shares in Associated British Foods, parent of low-cost fashion chain Primark, finished up 1.5%. Tesco closed 2.7% higher, and WM Morrison up 2.3%. Gold miners were higher, however, as the price of the precious metal touches six-month highs. FTSE 250 Centamin closed 6.4% higher, with peer Hochschild Mining finishing up 5.0%.

Gold was quoted at USD1,288.62 an ounce at the London equities close Thursday against USD1,286.20 Wednesday. Brent oil was lower quoted at USD55.41 a barrel at the London equities close Thursday from USD56.52 at the close on Wednesday. Also in the midcap index, Games Workshop finished 2.7% higher as Peel Hunt upgraded its rating to Buy from Hold.

Elsewhere on the London Stock Exchange, Vectura shares rose 12% after the respiratory disease-focused pharmaceutical firm said it expects earnings for 2018 to be above market expectations, while revenue is set to be in line. Vectura expects adjusted earnings before interest, taxes, depreciation and amortisation above consensus expectations, due to margin improvements, productivity initiatives and overall revenue mix. Research and development investment for 2018 is expected in the range of GBP55 million to GBP65 million, while guidance for 2019 has been kept at GBP45 million to GBP55 million.

The corporate calendar on Friday has a trading statement from textile rental, cleaning, and care firm Johnson Service Group. In local economic data, figures showed the UK construction sector expanded at the slowest rate in three months at the end of 2018, though it remained in growth territory for the ninth consecutive month. The IHS Markit/CIPS Purchasing Managers’ Index came in at 52.8 in December, down from 53.4 in November and slightly below consensus forecasts of 52.9.

The score remained above the neutral mark of 50, which separates expansion from contraction. Markit said UK construction firms indicated a disappointing end to the year as business activity growth eased to a three-month low and new orders expanded at a relatively muted pace. The slowdown in construction growth mainly reflected softer rises in commercial and housing activity during December, said Markit.

However, a bright spot was civil engineering activity, which rose at the fastest pace since May 2017. The pound was quoted at USD1.2634 at the close, higher from USD1.2591 late Wednesday. The euro stood at USD1.1399 at the European equities close Thursday, up from USD1.1355 Wednesday.

Turning back to the US, a report released by the Labor Department showed a bigger than expected increase in first-time claims for US unemployment benefits in the week ended December 29th. The report said initial jobless claims climbed to 231,000, an increase of 10,000 from the previous week’s upwardly revised level of 221,000. Economists had expected jobless claims to edge up to 220,000 from the 216,000 originally reported for the previous month.

Partly reflecting favourable weather, payroll processor ADP released a report showing much stronger than expected US private sector job growth in the month of December. ADP said private sector employment surged up by 271,000 jobs in December after climbing by a downwardly revised 157,000 jobs in November. Economists had expected an increase of about 178,000 jobs compared to the addition of 179,000 jobs originally reported for the previous month.

The much stronger than expected job growth in December reflected the biggest jump in private sector employment since February of 2017. “We wrapped up 2018 with another month of significant growth in the labor market,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although there were increases in most sectors, the busy holiday season greatly impacted both trade and leisure and hospitality,” she added. “Small businesses also experienced their strongest month of job growth all year.”

This comes ahead of non-farm payrolls in the US, which are due out at 1330 GMT. “Tomorrow investors will be focusing on the non-farm payrolls report, and in particular the average earnings component,” said Madden. “Dealers will be viewing the numbers through the eyes of US Federal Reserve members, and trying to ascertain what the central bank’s next move will be.”

Elsewhere in the economic calendar on Friday are services PMIs from China, the EU, Germany, and the US. These come overnight, at 1100 GMT, 1055 GMT, and at 1445 GMT, respectively. By George Collard; georgecollard@alliancenews.com

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