July 23, 2018 / 9:07 AM / in 9 months

FTSE dips as cyclicals and airlines slide

LONDON (Reuters) - The UK’s top share index fell on Monday as trade tensions weighed on cyclical stocks while results from Ryanair weighed on the broader sector.

FILE PHOTO: A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville/File Photo

With attention also focussed on the unfolding earnings season, the blue-chip FTSE 100 index was down 0.3 percent at 7,655.79 points at the close, in line with a broadly negative European market.

A stronger pound earlier in the session weighed on the FTSE’s dollar-earning exporters, with large consumer staples including British American Tobacco, Diageo and Reckitt Benckiser taking the most points off the index. However, the pound gave up early gains to trade lower.

Cyclical stocks were also on the back foot, with financials and miners broadly lower.

These stocks, which tend to experience relatively bigger price swings, have come under pressure as risk appetite has been dented by uncertainty over the outlook for global trade.

A U.S. threat to slap tariffs on all $500 billion of imported goods from China rattled markets on Friday.

Equity strategists at J.P.Morgan said that they were sticking with their “underweight” view on UK stocks.

“The political situation will likely remain challenging, with a rather high probability of market-adverse scenarios materialising... which in turn could hurt corporate sentiment,” they said in a note.

Corporate results in the second-quarter earnings season also dampened the mood. Ireland’s Ryanair said that average fares would be lower than expected during the summer because of intense competition and uncertainty caused by strikes.

Ryanair’s shares tumbled 6.7 percent while British peers easyJet and IAG, which owns British Airways, both fell more than 1.5 percent.

“You could argue that easyJet is more immune to the crew disruption angle, given its better relations with unions,” said Mike van Dulken, head of research at Accendo Markets.

“However, it’s difficult to argue that the other issues (Ryanair) CEO (Michael) O’Leary points to aren’t applicable to such a close peer. Hence why the sector as a whole is having a bad day.”

McColl’s Retail Group dropped 13.8 percent to the bottom of the small-caps index after the convenience retailer gave a muted forecast and reported a drop in first-half like-for-like sales.

“More worrying is a drop in margins due to cutting prices in order to stay competitive,” said Russ Mould, investment director at AJ Bell.

Reporting by Kit Rees; Editing by John Stonestreet and David Goodman

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