London Markets: FTSE 100 drops from 4-week high as trade-war worries hurt mining shares

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U.K. stocks fell Friday, pulling back from a nearly four-week high, with mining stocks knocked by worries about escalating tensions between the U.S. and China on trade issues.

How markets are performing

The FTSE 100 index UKX, -0.74% dropped 0.7% to 7,708.42. On Thursday, the index rose 0.8% and ended at its highest since May 23, according to WSJ Market Data Group.

This week, the London benchmark was on course for a modest rise of 0.3%, enough to break a string of three weekly declines.

The pound GBPUSD, +0.1357% bought $1.3280, slightly higher than $1.3260 late Thursday in New York. Sterling was looking a roughly 0.8% decline against the greenback for the week. Against the euro GBPEUR, -0.0872% the pound fetched €1.1464, little changed from €1.1462 in the prior session.

What’s driving markets

Equity losses picked up following a Reuters report that the U.S. government is nearly finished drawing up the list of a second wave of tariffs on Chinese goods, on $100 billion of products.

U.S. President Donald Trump late Thursday approved a first round of levies on about $50 billion in Chinese goods, and details of the initial list are expected to be announced Friday. Beijing responded to Trump’s list approval by saying it will impose levies on $50 billion in U.S. products.

Mining stocks took a hit on concerns that a trade war will lead to lower demand for industrial and precious metals. China is the world’s largest buyer of copper. This week, mining stocks were dragged lower on concerns about economic growth in China after business activity slowed in May.

The basic materials sector makes up more than 9% of the FTSE 100’s weighting, and mining stocks make up 87% of that sector, according to FactSet data.

What strategists are saying

“The political wrangling is clearly weighing on sentiment in capital markets with yields on benchmark U.S. 10-year bonds TMUBMUSD10Y, -0.12%   drifting lower towards the 2.90% level,” said Boris Schlossberg, managing director of FX strategy, in a note. Yields fall when investors buy bonds, with government paper considered a haven asset.

“Despite the seemingly robust growth of the U.S. economy, investors are clearly concerned that U.S. policy will damage world trade and slow down growth sooner rather than later and this disconnect between the generally sanguine current situation and the negative future sentiment is keeping a cap on the dollar rally,” said Schlossberg.

Stock movers

Among miners, Anglo American PLC AAL, -1.71%  fell 2.1% as did Randgold Resources PLC RRS, -1.45% GOLD, +0.90%  . BHP Billiton PLC BLT, -1.76% BHP, -0.65% BHP, +0.54%  declined 1.8% and Fresnillo PLC FRES, -0.87%  fell 1.5%.

Rolls-Royce Holdings PLC RR., +8.18% rallied 8.2% after the British aircraft-engine maker said its planned job cuts should help it exceed a target of £1 billion in cash flow by 2020. Rolls-Royce on Thursday said it would cut 4,600 jobs over the next 24 months.

Tesco PLC shares TSCO, +2.00% TSCDY, -0.25%  rose 2% as the U.K.’s biggest grocer by market share said like-for-like sales rose 1.8% in the 13 weeks ended May 26, a tenth consecutive quarterly increase. Sales were bolstered after Tesco’s purchase of food wholesaler Booker Group PLC.

BT Group PLC shares BT.A, -1.66%  fell 1.6%. Ofcom, the U.K.’s communications industry regulator, said in a Thursday report that there’s more work to do by BT “to ensure more independent decision-making from Openreach,” BT’s infrastructure network. Ofcom last year set out plans to make Openreach’s network available to competitors.

Bank stocks were down, losing ground alongside continental lenders FX7, -2.01%  after the ECB said Thursday said the eurozone’s interest rates — which are at all-time lows — will remain at their present levels “at least through the summer of 2019”. Bank profits are helped by higher interest rates, as that increases the spread banks earn between longer-term assets, such as loans, and shorter-term liabilities.

Some U.K. banks have operations in Europe through so-called passporting rights. Shares of Barclays PLC BARC, -3.05% BCS, +0.09%  fell 2.4% and Lloyds Banking Group PLC LLOY, -1.96% LYG, -0.89%  lost 1.9%.