The dollar was rising and stock prices were flat to lower early on Wednesday, as financial markets reacted to a sharp escalation in political rhetoric and sabre rattling by China in response to a senior US politician's visit to Taiwan.
US House Speaker Nancy Pelosi became the most senior US official in 25 years to visit Taiwan, in a trip that angered Beijing and set off a diplomatic firestorm.
She defied a string of increasingly stark warnings and threats from China, which views Taiwan as its territory and had warned it would consider her visit a major provocation.
The FTSE 100 was down 29.41 points, or 0.4%, at 7,379.70 early Wednesday. The FTSE 250 index was down just 1.19 points at 19,872.88. The AIM All-Share index was up 1.60 points, or 0.2%, at 910.94.
The Cboe UK 100 index was down 0.5% at 736.67. The Cboe 250 was down 0.1% at 17,320.04. The Cboe Small Companies was down 0.1% at 13,876.37.
In Paris, the CAC 40 stock index was flat, while in Frankfurt, the DAX 40 was 0.1% lower.
Pelosi pledged Washington's support for Taiwan during her visit to the island on Wednesday.
‘Today, our delegation...came to Taiwan to make unequivocally clear: we will not abandon our commitment to Taiwan, and we're proud of our enduring friendship,’ Pelosi said at a joint press conference with Taiwan's President Tsai Ing-wen.
‘Today, the world faces a choice between democracy and autocracy,’ Pelosi said, as she praised Taiwan as ‘one of the freest [democracies] in the world, proudly to be led by a woman president.’
Stocks in Asia were mixed amid the US-China tensions. The Nikkei 225 in Tokyo closed up 0.5%. In China, the Shanghai Composite closed down 0.7%, while the Hang Seng Index in Hong Kong was 0.2% higher in late trade. In Sydney, the S&P/ASX 200 was down 0.3%, however.
The dollar was stronger across the board, boosted by the heightened political risk.
The pound was quoted at $1.2192 early Wednesday in London, down from $1.2210 late Tuesday. The euro stood at $1.0182, down from $1.0195. Against the yen, the dollar was trading at JP¥133.23, up markedly from JP¥131.80.
‘Some may...have viewed the risk-off reaction to the Pelosi visit as overdone, with the US having reiterated its existing 'One China' policy with regards to Taiwan,’ commented Rabobank. However, the dollar received further support from hawkish remarks by a series of speakers from the US Federal Reserve on Tuesday, the Dutch bank said.
The stronger dollar was a headwind for gold. The duo have a largely inverse relationship. Gold stood at $1,765.82 an ounce, down from $1,778.85 late Tuesday in London.
The economic events calendar on Wednesday has services PMI readings from the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST. There also are eurozone retail sales and producer prices at 1000 BST.
The raft of PMIs got off to a decent start, with figures out of China suggesting the services sector there was bolstered by reduced Covid restrictions, which allowed for ‘more normal’ working conditions.
The seasonally adjusted headline business activity index picked up in July, rising to 55.5 points from 54.5 in June. Sitting further above the 50.0 mark, the figure suggests growth picked up.
Brent oil was quoted at $99.78 a barrel early Wednesday UK time, down from $99.99 at the London equities close on Tuesday. The OPEC+ group of major oil exporters meets Wednesday to discuss its output strategy.
In London, Avast shares surged 42% after the UK Competition & Markets Authority said it has provisionally cleared NortonLifeLock's acquisition of the cybersecurity firm, following an in-depth probe of the deal.
The deal, announced back in August 2021, valued Avast at up to $8.6 billion at the time. Avast currently has a market capitalisation of £7.06 billion, about $8.61 billion.
‘The CMA's investigation has found that the supply of cyber safety software to consumers is rapidly evolving. Providers of both paid-for and free services are continually developing and improving their products over time to meet different and changing customer needs,’ the watchdog said.
The enlarged firm still faces stiff competition, including ‘main rival’ McAfee, the CMA explained. In addition, Microsoft's own in-house cybersecurity applications in the Window operating system are ‘increasingly important alternatives for consumers’.
NortonLifeLock expects the deal to close on September 12.
Taylor Wimpey added 3.8%. The housebuilder reported a rise in interim profit as it trimmed expenses.
Revenue in the half-year that ended July 3 came in slightly lower, however, at £2.08 billion, down 5.4% from £2.20 billion a year earlier.
Pretax profit rose 16% year-on-year to £334.5 million from £412.5 million. Net operating expenses were 15% lower at £189.9 million.
Taylor Wimpey completed 6,790 homes during the half, excluding joint-ventures, down 7.0% year-on-year but ahead of guidance.
‘The housing market continues to be resilient despite inflationary pressures in the wider economy and recent rises in the Bank of England base rate. There remains good availability of attractively priced mortgages, and we continue to see a healthy level of demand for Taylor Wimpey homes reflecting the quality of our homes and locations nationwide,’ it said.
Taylor Wimpey expects yearly operating profit at the top end of the current market consensus range, helped by average selling prices, which forecasts to rise 4% to 5% year-on-year.
‘Current market conditions are supportive despite build-cost inflation running at about 9% to 10%,’ commented Andy Murphy at research house Edison.
He added: ‘Despite the sell-off in the shares the outlook for the sector is rosy, supported by a long term supply-demand imbalance...The stock also looks good value trading on a [price-to-earnings ratio] of just 6.3 times and yielding 7.9%, similar values to peer Barratt Developments.’
Barratt was up 0.5% early Wednesday.
Hiscox was the worst-performing FTSE 250 constituent, sliding 7.6%. The insurer said it swung to a loss in the half-year that ended June 30. It reported a pretax loss of $107.4 million, swinging from a profit of $133.4 million a year prior.
Hiscox suffered an investment loss of $214.1 million, after a gain of $61.9 million a year earlier. It put the poor investment result down to ‘to interest rates rising sharply, credit spreads widening, and equity markets selling off.’
Gross written premiums increased 9.2% year-on-year to $2.65 billion from $2.43 billion. Its combined ratio improved to 91.3% from 93.1%, the lower figures Hiscox is making more profit from its underwriting operations.
Hiscox said it estimates its loss from the Ukraine and Russia conflict is $48 million, net of reinsurance.
On AIM, Osirium Technologies surged 23% as the vendor of cloud-based cybersecurity and IT automation software agreed an extension to a services deal with a ‘global asset manager’.
The three-year extension to the privileged access management deal has a total value of £500,000. Osirium's said the customer is using the cybersecurity product to protect 4,500 devices.
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