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London stocks muted amid China-US tensions

Market sentiment has taken a downward turn amid an expected visit by US Speaker Nancy Pelosi to Taiwan.

In spite of escalating tensions between the US and China, London equities showed little movement in early trade on Tuesday.

European markets fell from their intraday highs on Monday after reports that US House Speaker Nancy Pelosi would be visiting Taiwan this week in defiance of Chinese warnings not to do so.

Neil Wilson, chief market analyst at Markets.com, said: “There’s plenty of disquiet about Nancy Pelosi’s rumoured visit to Taiwan. Asian markets fell around 1-2% overnight. It’s really quite hard to read too much into this mooted visit by the Speaker of the House of Representatives – the war of words between the US and China is likely to be spicy but unlikely to be material.

“Longer term, we simply don’t know how Beijing will respond; for today it’s a case of muscle flexing: buzzing the skies with jets, military drills and even firing the odd missile. Ultimately the worry is that tensions becoming inflamed enough for Beijing to use this as the pretext it seeks to invade? I’m not an Asian policy expert so I will leave that to those in the know; for traders I would simply urge you to play what’s in front of you.”

In equity news, BP shares rose after the London-listed company posted record profits during the second quarter, beating estimates.

The shares of UK bakery chain Greggs also rose after half-year sales grew. Total sales were up 27.1% to £694.5 million, like-for-like sales grew by 22.4%.

Charlie Huggins, Head of Equities at Wealth Club, commented: “Greggs has managed the pandemic well and sales have recovered strongly. However, just as one major threat recedes, another rears its ugly head – this time inflation.

The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits. There’s a limit to how far it can raise prices to offset these extra costs. Greggs also has a reputation for offering exceptional value for money, which it’s keen to uphold. Aggressive price increases now would be akin to gorging on pasties and donuts – feels good in the short-run but not so good for long-term health.

So far, Greggs is managing these pressures well. While costs have grown, so too have revenues. Gregg’s brand reaches more people today than before the pandemic, and is in fine fettle. For that, the group can thank Piers Morgan’s hatred of vegan sausage rolls, but also excellent operational execution. Greggs has transformed its supply chain while growing its product range and store estate. Nowadays, you can get a Greggs sausage roll, or even a Mexican Chicken Baguette, delivered directly to your door.

If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures. But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook. That headwind is probably more or less baked into the share price, but until inflation comes down, Greggs will have to run hard just to stand still.”

US stocks are expected to make a sharp drop at the open, amid concerns top Democrat Nancy Pelosi’s expected visit to Taiwan will spark tensions with China.

The S&P 500, the benchmark of US stocks, is expected to fall 0.6pc at the bell in a bit over an hour.


Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.