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FTSE 100 closes higher, given a leg-up by weaker pound

The blue-chip index closed around 38 points higher at 7,700
Wall street
Sterling fell after the latest Bank of England interest rate decision
  • FTSE 100  closes higher

  • Bank of England leaves interest rates unchanged

  • BT top FTSE 100 loser as it cuts thousands of jobs

  • RBS gains as it settles with US Department of Justice 

 

FTSE 100 closed higher as the UK premier index was given a boost by weaker sterling.

The pound lost ground after the latest Bank ot England meeting, where interest rates were kept on hold. Against the Euro, the pound lost 0.97% and against the US dollar, it was off 0.36%.

FTSE 100, which consists mainly of dollar earning firms, added over 38 points at 7,700, while FTSE 250 added over 17 at 20,699.

Top loser on Footsie was telecoms firm BT Group (LON:BT.A), whose shares tanked 7.36% to 221.05p after it unveiled an aggressive cost-cutting plan, involving axing 13,000 jobs, to pay down its pension deficit and maintain its dividend policy.

David Madden, at CMC Markets, said: "The telecoms company is even selling off its London headquarters in a bid to raise funds.

"Investors have viewed the vigorous cost-cutting scheme as a sign the company is finding it difficult to keep its head above water."

The top riser was High Street retail darling Next Plc (LON:NXT), which added over 6% to 5,568p after it raised its full year profit forecast as the recent bout of sunny weather led to better-than-expected first quarter sales.

3.50pm: RBS investors hope dividends resume

Royal Bank of Scotland PLC (LON:RBS) shares are up 2.8% to 284p this afternoon after agreeing a US$4.9bn settlement with the US Department of Justice over the alleged mis-selling of mortgage-backed securities. 

Jasper Lawler, head of research at London Capital Group, said the share price is higher because investors are hopeful the settlement will mean a quicker resumption of dividend payments.

He added: "It is good news for Chancellor Philip Hammond who has said, in not so many words, that this helps his plans to sell down the government’s 71% stake leftover from the bailout.  

"But RBS shares remain below the 330p price at which the government sold its first stake in 2015. We think Mr Hammond will sell some of the government’s stake in RBS in early 2019. He will likely have to fend off criticism about not making a profit for taxpayers, but a bird in the hand is better than two in the bush."

2.50pm: US stocks open higher as traders weigh inflation data

Away from the Bank of England excitement, US stocks are trading higher for a sixth straight season.

The Dow Jones Industrial Average added 85 points to 24,630, the S&P 500 increased 10 points to 2,708 and the Nasdaq rose 24 points to 7,364.

Investors are digesting US inflation data that fell short of analysts’ expectations. The Labor Department said the consumer price index rose 0.2% in April, up from a 0.1% fall in March but below estimates of 0.3%.

The data eased concerns about the Federal Reserve raising interest rates at a faster rate than the market predicts.

The main reason for the lower-than-expected inflation was a drop in car prices and airfares.

ING Research said it expects a recovery next month given the “healthy state of the economy”.

“As such, we think the market consensus forecast for CPI this year is too low and that in an environment of robust economic activity fuelled by tax cuts and a tight jobs market there is the risk of a market re-appraisal,” it said.

“We look for three further interest rate rises from the Fed this year, running at one every quarter, with US 10Y Treasury yields moving up to a 3.25-3.50% range in the second half of 2018.”

2.00pm: Unchanged rates may help utilities and real estate stocks, says analyst

 Russ Mould, investment director at AJ Bell, reckons the Bank of England’s "studious inactivity" could help utilities and real estate stocks.

“The Bank of England’s latest policy flip-flop has already hit the pound hard, and may not do much for the Old Lady of Threadneedle’s credibility either, but it could help bring utility and real estate stocks back into focus,” says Russ Mould, AJ Bell Investment Director.

“Both sectors face other challenges – ever-tighter regulation and attempts to stoke further competition in the case of utilities and the threat posed to bricks and mortar retail by online rivals when it comes to real estate – but both have historically done relatively well when the Bank of England has left interest rates unchanged over the past decade.

"Utilities may benefit from their perceived status as a bond proxy and an alternative source of income to Government (or corporate) debt.  This is partly because expectations for base rate policy influence the yield on offer from the UK’s benchmark Government bond, the 10-year Gilt."

1.10pm: Markets may have been too quick to write-off a near-term rate hike, says ING

Markets have interpreted the overall tone of the Bank of England's policy statement as more dovish than expected but ING Research thinks this is a "bit of an overreaction". 

"The Bank is keen to emphasise that it thinks the weaker growth will prove to be temporary – and interestingly, that the initial estimate of 1Q GDP has been wildly underestimated," ING said.

"The latest forecasts assume an upward revision from 0.1% to 0.3% quarter-on-quarter."

ING believes markets may have been too quick to write-off a near-term rate hike. 

Jacob Deppe, head of trading at online trading platform, Infinox, is among the analysts expecting the BoE to hold off on raising rates for some time.

“Short of a significant rebound in second quarter GDP and uptick in inflation, it’s looking like the next interest rate rise could have been bumped back into 2019," he said. 

“With the economy flat and inflation seemingly on a downward trajectory, the chances of a rate rise this year are looking increasingly remote.”

12.55pm: 'We’re not trigger happy on interest rates', says Carney

Mark Carney has said the Bank of England will adjust policy "if the situation is appropriate" after assessing economic data. 

"We’re not trigger happy on interest rates," he said in response to a reporter's question about the "confusion" of the BoE's guidance on rates. 

He added: "Interest rates are going to remain low for much longer than thought".

12.50pm: Carney blames Beast from the East for disappointing UK GDP

Bank of England Governor Mark Carney said the Beast from the East contributed to the lower-than-forecast economic growth over the last three months.

Speaking at a press conference after the Bank released its policy announcement, meeting minutes and Inflation Report, Carney said snowy and icy weather in Britain meant some people were unable to get to work and hit the construction sector in particular.

While the weather has improved, Britain’s economy is still “clouded by Brexit uncertainty”, he added.

However, he said the labour market remains strong with unemployment at its lowest rate in four decades and employment at a record high.

The FTSE 100 has slipped back 5 points to 7,657.

12.40pm: BoE expected to raise rates later this year

The Bank of England is likely to raise interest rates in August, according to Chris Williamson, chief economist at IHS Markit.

He said: “The unchanged medium term outlook leaves expectations alive for rates to rise later in the year, likely August, highlighting how policymakers believe the recent weak start to 2018 to have been a temporary soft patch, linked mainly to heavy snowfall. 

“However, the Bank is also worried that the underlying pace of economic growth may have in fact waned so far this year.

"Survey data suggest that some of this slowdown can be linked to weaker economic growth in continental Europe, but companies are also reporting that domestic demand among households and businesses has continued to be dampened by uncertainty about the economic outlook and higher prices."

Williamson said economic data in the next few months, including purchasing managers' index figures in May, will be closely eyed for clues on the next policy move.

12.30pm: Brexit uncertainty weighs on economy

In explaining its reason to keep rates unchanged, the Bank of England pointed to weaker-than-expected first quarter economic growth and lower-than-forecast inflation in March. 

The Bank expects inflation, which came in at 2.5% in March, to fall back to its 2% target in two years. 

The BoE also said uncertainty over Brexit is weighing on the economy.

"The muted response of business investment is, at least in part, likely to have reflected the expected impact of Brexit and associated uncertainty," it said in its Inflation Report. 

12.20pm: Pound weakens after BoE policy decision 

The pound is down 0.24% versus the dollar at US$1.3515 and down 0.49% to versus the euro at €1.1374 following the Bank of England's policy announcement. 

Nick Dixon, investment director at Aegon, said: "The reasons for caution shown today by the Bank of England are clear. The pound appears to have stabilised reducing future inflation risk, UK growth expectations are lower, and the global picture is less certain.

“We see these forces, reinforced by Brexit uncertainty, persisting into the second half of 2018 and reducing the likely pace of future rate increases.”

12.10pm: BoE cuts UK GDP forecasts

The Bank of England has cut its forecast for UK economic growth to 1.4% this year from the 1.8% it predicted three months ago. 

The Bank also downgraded its estimates for 2019 and 2020 to 1.7% from 1.8%.

That lowered estimates come after first quarter GDP rose just 0.1%, 0.3 percentage points lower than expected.

12.00pm: BoE leaves rates unchanged

The Bank of England voted to leave interest rates unchanged at 0.50%, as expected by economists.

However, Monetary Policy Committee members Ian McCafferty and Michael Saunders voted to raise rates.

The Bank also left its asset purchase scheme unchanged at £435bn.

The central bank suggested it expects to hike rates three times over three years. 

11.20am: ONS revises down UK trade deficit estimate for 2016

The Office for National Statistics has revealed that the UK trade deficit in 2016 was £10bn lower than previously thought.

The trade deficit in 2016 was £30.6bn rather than the £40.7bn previously recorded due to an improvement in the estimate of trading margins at the banks that identified more financial service exports, the ONS said. 

"While the impacts of the improvements announced today are small, they ensure that ONS will continue to measure our changing and increasingly digital economy in the best way possible," said Darren Morgan, ONS director of National Accounts Transformation.

The ONS also revealed that the trade deficit in the first quarter narrowed by £0.7bn to £6.9bn as the UK imported less ships, clothing and aircraft from non-European Union countries. 

10.30am: BT and Randgold Resources the biggest FTSE 100 fallers

The FTSE 100 has moved into the red, falling 3 points to 7,659, led by Randgold Resources Ltd (LON:RR) and BT Group PLC (LON:BT.A).

Randgold Resources shares tumbled 8% to 5,602p after reporting a 27% drop in first quarter profits due to lower gold sales and higher production costs.

BT’s shares fell 7.8% to 219p after it announced it would cut 3,000 managerial and back-office jobs and leave its London headquarters as it reported a 3% drop in fourth quarter revenue.

The biggest risers were Next PLC (LON:NXT) and Royal Bank of Scotland Group PLC (LON:RBS).

Next shares jumped 7.3% to 5,631p after raising its full year profit forecast after first quarter sales rose more than expected.

RBS gained 4% to 287.2p after paying US$4.9bn to settle an investigation by the US Department of Justice over the alleged mis-selling of mortgage-backed securities in the lead up to the financial crisis. The fine was less than estimates of up to US$10bn and drew a line under an issue that has been hanging over the bank’s head for some time. 

9.50am: UK manufacturing production falls for second straight month in March

UK manufacturing output dropped for a second consecutive month in March, falling 0.1% after a 0.2% decrease in February. 

The Office for National Statistics said the decline reflected weaker electrical equipment and pharmaceutical production

Industrial production grew 0.1% in March, reflecting increased power generation in a month of cold weather.

In contrast, the unusually cold weather contributed to a 2.3% fall in construction output in March.

8.50am: FTSE 100 becalmed ahead of BoE rate decision

Becalmed was possibly the best word to describe the FTSE 100 as it opened just eight points higher at 7,670.26 with the equity markets shrugging off the fall-out from America's withdrawal from the Iran nuclear pact.

Topping the leader board with a 6% riser was Next (LON:NXT) after the retailer weighed in with a better-than-expected trading update.

"On a more downbeat note, first quarter sales were always likely to look good versus the quite poor year-ago quarter and management still doesn't think the stronger first-quarter will be replicated across the rest of the year," said Neil Wilson, analyst at Markets.com.  

"Nevertheless, the boost to earnings is a nice positive and as ever Next remains something of a cash cow with strong free cash generation."

Royal Bank of Scotland (LON:RBS) shares advanced 5% after it agreed to a US$4.9bn settlement that draws a line under its US litigation worries.

Down almost 10% were shares in BT Group (LON:BT.A) as the City reacted negatively to the telco's restructuring plans, which includes cutting 13,000 jobs, a strategy reset and disappointing revenue guidance.

Meanwhile, investors are looking ahead to the latest interest rate decision by the Bank of England later today, though the central bank is expected to keep policy unchanged. 

Proactive news headlines:

Providence Resources PLC (LON:PVR) chief executive Tony O’Reilly, in the Irish oil explorer’s financial results statement for 2018, told investors that it was an “extremely busy” year, albeit, the most significant recent event came after the reporting period.

Bezant Resources PLC (LON:BZT) shares rose on Thursday morning as the company announced that its Mankayan copper-gold project in the Philippines is to be a “world class asset” and has major potential to generate further value.

Amryt Pharma PLC (LON:AMYT) has signed an agreement with Aegerion Pharmaceuticals Inc to significantly expand its exclusive licence agreement for Lojuxta into Russia and the Commonwealth of Independent States, as well as the non-EU Balkan States.

IXICO PLC (LON:IXI), the digital technologies company serving neuroscience, has signed amendments to current contracts that expand the clinical trial services provided to two biopharmaceutical companies, adding around £500,000 to the value of the contracts.

Southend airport owner Stobart Group Ltd (LON:STOB) swung into profit as it booked a substantial gain on the sale of a stake in logistics associate Eddie Stobart. The airport saw passenger numbers rise by 29% in the year to February, but progress was impeded by the collapse of Monarch Airlines. 

Coinsilium Group Limited (NEX:COIN) has been appointed as an adviser to ‘smart contracts’ platform FANTOM Foundation ahead of a token generation event (TGE). The NEX-listed blockchain investor said FANTOM, which runs the world’s first directed acyclic graph (DAG) based ‘smart contract platform’, will aim to sell tokens for a total of US$39.8mln in the TGE which is expected to begin on 15 June this year.

Michelmersh Brick Holdings PLC (LON:MBH) chairman, Martin Warner, will say at its annual general meeting that the brick maker is expecting ‘significant growth’ this financial year as its Carlton Main Brickworks acquisition began its first full-year of contribution to company revenues.

Cradle Arc PLC (LON:CRA) told investors that it will retain 100% of the Kossanto West gold project in Mali following Randgold Resources PLC (LON:RRS) decision to exit a partnership agreement made back in February 2016.

Eurasia Mining PLC (LON:EUA) has raised £500,000 through a significantly oversubscribed placing of shares and warrants at 0.3p.

Rambler Metals and Mining PLC (LON:RMM) (TSXV:RAB), a copper and gold producer operating in Newfoundland and Labrador, Canada, announced that the employees of its Ming Mine, Nugget Pond Mill and Goodyear's Cove facilities are the recipients of the 2017 John T. Ryan National Award from the Canadian Institute of Mining, Metallurgy and Petroleum as the safest underground metal mine in Canada for 2017.

6.45am: Positive start expected

London’s FTSE 100 is expected to make a positive start to Thursday’s trading, up towards new highs, after US markets evidently shrugged off any negativity around Donald Trump’s controversial decision to exit the Iran nuclear deal.

Whilst equities haven’t accounted for higher risk, surging crude oil prices pushed up energy stocks.

“A fifth straight positive close for the Dow suggests that traders are not expecting a huge fallout from Trump quitting the Iran nuclear pact,” said Jasper Lawler, analyst at London Capital Group.

“Risk on was firmly in play as Wall Street booked further gains overnight, boosted by a jump in energy stocks tracing the price of oil higher, financials and technology stocks.

Lawler added: “Oil continued to rally for a second straight session following Trump’s announcement on Tuesday and his promise of powerful new sanctions on Iran, expected to target the country’s oil industry, tightening global supply.”

In New York, the Dow Jones ended Wednesday some 182 points or 0.75% higher, at 24,542, while the S&P 500 gained 0.97% to close at 2,697 and the Nasdaq gained 1% to finish at 7,339.

Meanwhile, in Asia, Japan’s Nikkei was also rising as it added 83 points or 0.37% to trade at 22,491.

Hong Kong’s Hang Seng climbed 220 points or 0.72% to 30,757 and the Shanghai Composite moved 0.12% higher to 3,162.

IG Markets, meanwhile, sees the FTSE 100 starting today’s trading session on the front foot.

The CFD and spreadbetting group sees the London index rising 41 points, calling it at 7,676 to 7,680, just over an hour before the open.

At midday, attention in London will be on the Bank of England, albeit no policy change is anticipated from the central banker’s interest rate meeting for this month.

In the meantime, the corporate diary looks rather busy.

Thursday May 10:

Finals: BT Group PLC (LON:BT.), Stobart Group Ltd (LON:STOB)

Trading updates: Barratt Developments PLC (LON:BDEV), Next PLC (LON:NXT), Wm Morrison Supermarkets PLC (LON:MRW), ITV PLC (LON:ITV), RSA Insurance Group PLC (LON:RSA), Coca Cola HBC PLC (LON:CCH), Superdry PLC (LON:SDRY), Derwent London PLC (LON:DLN), Hansard Global PLC (LON:HSD), SIG PLC (LON:SHI), Randgold Resources PLC (LON:RRS), Vesuvius PLC (LON:VSVS)

Interims: On The Beach Group PLC (LON:OTB), Arrow Global Group PLC (LON:ARW)

Ex-dividends: FTSE 100 – Admiral Group PLC (LON:ADM), BP PLC (LON:BP.), Centrica PLC (LON:CNA), GlaxoSmithKline PLC (LON:GSK), Royal Dutch Shell PLC (LON:RDSA)

Economic data: RICS UK housing market data; UK trade data; UK construction output; UK index of production; US CPI; US weekly jobless;

Around the markets:

Sterling: US$1.3564, up 0.13%

Gold: US$1,313 per ounce, up 0.19%

Brent crude: US$77.73 a barrel, up 3.3%

Bitcoin: US$9,296, down 0.11%

Headlines

Pound Fate to Hinge on Carney Keeping 2018 Rate Hike Alive - Bloomberg

RBS agrees $4.9bn penalty to end US probe over 2008 financial crisis – Telegraph

Donald Trump bans Irn-Bru at luxury Scottish golf resort - The Independent

Rolls cost-cutter a victim of his own success - The Times

Comcast to include $2.5bn break fee in any new Fox approach - Financial Times

Novartis and AT&T Spoke to Mueller's Office About Payments to Michael Cohen - New York Times

China's ZTE says main operations have ceased after US ban - CNNMoney

California Takes Big Step to Require Solar on New Homes - Wall Street Journal

Tesla crash that killed two Florida teens probed by NTSB investigators - USA TODAY


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