Markets rally as China tones down its trade war rhetoric

CHINA set the tone for a trade war relief rally yesterday, striking an emollient note on the tariff tit-for-tat between the Asian manufacturing giant and the United States.

Calmer heads appeared to have prevailed in Beijing, with Gao Feng, a Chinese Ministry of Finance spokesman, saying midmorning London time that China would rather discuss removing the latest duty increases promised by US president Donald Trump than continue the countries’ escalations of levies.

“China has ample means for retaliation, but thinks the question that should be discussed now is removing the new tariffs to prevent escalation,” said Mr Gao.

He added that both sides are currently discussing the situation over trade talks set to begin next month. The negotiations were thrown into doubt after China suggested earlier this week it didn’t recognise Mr Trump’s claims that calls had occurred between Beijing and Washington.

The optimism from China’s latest statements, combined with an expectations-beating French GDP figure and apparent breakthrough in Italian political negotiations, lit a fire under European stocks, with the continentwide STOXX 600 closing up 1.29pc, or 4.7 points, at 368.38. The FTSE 100 joined the rally but dragged its feet slightly, closing up 0.98pc, or 69.61 points, at 7,184.32. It was weighed down heavily by a sheer drop for software and IT firm Micro Focus, shares in which collapsed 32.4pc, or 504p, to £10.51 after it cut its results guidance. The catastrophic drop put it beneath stricken retailer

Marks & Spencer by market cap, and leaves it facing potential relegation.

M&S, which needs a miracle to avoid losing its place in the top index, fell 0.5p to 188.25p. Engineering firm Smiths

Group was the biggest riser on the FTSE 100 by proportion, rising 5.13pc, or 80p, to £16.9. It was feeling the afterglow from a Goldman Sachs note which upgraded its shares from neutral to “buy”, citing its strong revenue profile and better cash flow.

Elsewhere among blue-chips, exporters performed solidly, with many benefiting from a second day of declines in the value of sterling, which is exposed to uncertainty over Brexit.

That weakness dragged on the more domestically focused FTSE 250, which nonetheless managed to eke out a moderate gain of 0.47pc, or 89.51 points, to close at 19,292.5.

Three fifths of the mid-cap index’s shares managed to find gains, offsetting some weight at the bottom from Tullow

Oil, which staggered 11.5p to 205.8p after having to abandon its plans to sell a stake in its Uganda operations over tax issues.