FTSE 100 slips on worry U.S. will ratchet up Chinese tariffs

U.K. stocks slumped Wednesday, as mining stocks fell after a report the White House may consider sharply increasing proposed tariffs on Chinese imports.

Meanwhile, August trade got underway with hefty batch of new earnings reports, with fashion retailer Next PLC dropping to the bottom of London’s blue-chip benchmark after its own trading update.

How markets are performing

The FTSE 100 UKX, -1.21% slumped 0.9% to 7,679.09. No sector traded higher, and the basic materials group fell by the most. The London gauge on Tuesday rose 0.6% to mark its highest close since June 14. For July, the index bulked up by 1.5%.

The pound GBPUSD, +0.0152%  bought $1.3113, down from $1.3127. The Bank of England on Thursday is widely expected to raise interest rates by a quarter-percentage point to 0.75%.

What’s driving markets

Mining shares as a whole suffered the most as global trade concerns weighed once again. Some White House advisers have reportedly urged President Donald Trump to sharply increase tariffs planned for $200 billion worth of Chinese goods, to 25% from the 10% originally proposed.

The risk of higher tariffs sent copper prices HGQ8, -0.14%  sliding by 2.5%, as China is the world’s largest consumer of the industrial metal. The concerns in turn helped drive a broad decline in mining stocks in London.

China plans to retaliate if the U.S. steps up its use of tariffs to put pressure on Beijing in the dispute over trade, Reuters reported Wednesday.

On Tuesday, the FTSE 100 shook off choppy action after a Bloomberg News report that U.S. and Chinese officials are holding private talks on how to restart negotiations aimed at avoiding a full-blown trade war between the world’s largest economies.

Later in Wednesday’s session, investors will receive a policy statement from the U.S. Federal Reserve, which is expected to signal that more interest-rate hikes are in the pipeline.

Miners hit

Rio Tinto PLC shares RIO, -4.36%  fell 4.3% alongside a broader decline in mining shares, as the iron ore producer released its financial results.

In its update, Rio Tinto said first-half profit before one-off items rose to $4.42 billion, falling short of a $4.6 billion consensus estimate. Rio Tinto is planning to raise its dividend and buy back a further $1 billion in stock as it first-half net profit climbed 33%.

“The threat for Rio at the moment is a global trade war which dents the Chinese economy. Its sprawling iron ore mines on Australia’s west coast fuel economic development in the world’s second largest economy, and if demand for new cars and tower blocks slows that won’t do it any favours,” said Laith Khalaf, senior analyst at Hargreaves Lansdown, in a note.

Among other mining stocks, iron ore producer BHP Billiton PLC BLT, -3.16%  lost 3% as did shares of Glencore PLC GLEN, -3.02%  . Antofagasta PLC ANTO, -2.31%  gave up 2.2%.

Stocks in focus

Next PLC NXT, -7.21%  shares sank 6%, falling to the bottom of the FTSE 100, as the apparel and home furnishings retailer maintained its sales and profit guidance for fiscal 2019. Second-quarter sales rose, helped by a run of hot weather conditions.

Lloyds Banking Group PLC LLOY, +1.81%  rose 1.4%, with the lender raising its margin and capital guidance following a strong first half. But the bank booked another major provision over payment-protection insurance because of higher-than-expected claims.

Smurfit Kappa Group PLC shares SKG, +2.81%  climbed 2.4% as the Irish paper-and-packaging producer logged a 70% jump in first-half pretax profit to 416 million euros ($487.1 million), aided by strong underlying revenue growth in Europe and lower finance costs.

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