An escalating US-China trade spat sent UK stocks tumbling on Friday, sinking oil and mining shares in a broad reversal across European markets.
US President Donald Trump announced tariffs on US$50 billion worth of Chinese imports and Beijing threatened to respond in kind, stopping the FTSE 100’s earlier rally in its tracks and sealing the fourth straight week of losses for Britain’s top share index.
The FTSE 100 ended the day down 1.7 percent, resulting in a 0.6 percent loss on the week.
The pan-European STOXX 600 on Friday fell 1 percent to 389.13, but it was up 1 percent for the week.
One bright spot on the FTSE 100 was Rolls-Royce Holdings PLC, which jumped 7.6 percent after the engine maker issued ambitious mid-term goals.
The mid-cap FTSE 250 fell 1.5 percent and suffered its worst weekly fall in three months.
Mining stocks, which are highly sensitive to trade tensions, were hard hit. The pan-European basic resources sector lost 3.3 percent in its worst daily fall since November 2016.
Rio Tinto Group, Glencore PLC, BHP Billiton Ltd, and Anglo American PLC were top fallers, down by 4.1 to 4.5 percent.
Heavyweight oil majors BP PLC and Royal Dutch Shell Group fell 3.2 to 3.5 percent as oil prices fell sharply ahead of an OPEC meeting in Vienna next week.
A more dovish-than-expected interest rate outlook from the European Central Bank (ECB) had sent shares across Europe surging on Thursday, with the FTSE 100 also benefiting thanks to its heavy weighting in high dividend-yielding, interest rate sensitive stocks.
Bank stocks were a big drag on Friday as sentiment around international trade and US-China relations soured.
The sector was already weak post-ECB as investors priced in a longer wait before an ECB rate hike. Banks suffer from negative interest rates, which eat into their lending margins.
Tesco PLC shares also rose, climbing 2 percent after Britain’s biggest retailer reported strong results, saying a drive to lower prices had boosted its quarterly sales.
“Continued upbeat UK retail momentum, accelerating share gains at Booker and reducing pressures in Thailand all make for an upbeat start to Tesco’s 18/19,” Jefferies Group LLC analysts said.
Overall, UK shares have had a strong run in recent weeks, outperforming all European benchmarks last month, as investors warmed once again to the market.
Analysts have also been revising up their earnings estimates for the market.
Additional reporting by Bloomberg
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