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FTSE 100 closes in the red as sterling booms

Last updated: 18:00 24 Jan 2018 GMT, First published: 15:55 24 Jan 2018 GMT

Pound coin on a graph
 
  • FTSE 100 closes down 88pts at 7,643

  • Sterling rises against US dollar and Euro

  • Dollar earners friendless in London

FTSE 100 suffered at the hands of strong sterling and closed down 1.14%, or 88.4 points, at 7,643.

The pound is up 0.61% against the Euro at 1.1455 at the time of writing and up 1.51% against the US dollar at 1.4211.

The FTSE 250 closed around 132 points lower, or 0.64% , at 20,538.

The strength of sterling came after a report showed that UK wage growth picked up slightly as employment grew sharply in the three months to November.

The top riser on Footsie was London Stock Exchange (LON:LSE), which gained nearly 5% to 3,988p, while the top loser was The Sage Group plc (LON:SGE), which shed 6.48% to stand at 768.20p as traders took profits.

Sage, the multinational enterprise software firm, said it was "on track" to achieve its full year results after a good start to the year as first-quarter sales increased by 6.3%, aided by 7% organic growth. 

Weak dollar weighs..

Heading into the last half-hour of trading things were looking no better for the Footsie, with the weak dollar weighing heavily on sentiment.

The FTSE 100 was down 63 at 7,668, while the FTSE 250, which has a much smaller proportion of companies that earn the bulk of their revenues overseas, was faring better, down 78 at 20,593.

“If he intended it, Treasury Secretary Steven Mnuchin has done a first class job of whacking the dollar,” declared Neil Wilson at ETX Capital.

“His remark that the weaker dollar is good for growth sparked a renewed bout of dollar selling that is gaining pace,” he added.

“The strong dollar doctrine is one that markets are used to and to a degree we are entering relatively uncharted waters when the US government is not at least paying lip service to that. This should not come as a huge surprise – Trump had already made it pretty clear he didn’t like the strong dollar – saying over the last year that it is ‘too strong’ and that ‘lots of bad things happen with a strong dollar’. He should be careful what he wishes for,” Wilson declared.

2.45pm: Dollar earners in the dog-house

Another day, another high for US indices, though the strong start does not seem to have done much for the Footsie.

The Dow Jones stormed 136 points higher to 26,346 in early deals, while the S&P 500 was up 8 at 2,847.

In London, the FTSE 100 was down 56 at 7,676, plumbing depths not visited since the early days of the month.

The pound has now risen above US$1.42, which is a pre-Brexit vote level, and that is having a negative impact on the top shares index, choc-full, as it is, of big dollar earners.

“It’s tempting to see the pound’s mercurial rise this week as a sudden reversal of fortune but its rapid appreciation against [the] dollar – smashing through the psychologically important $1.40 barrier – is less a sterling success story than a lament of dollar weakness,” said party-pooping David Lamb, head of dealing at FEXCO Corporate Payments.

“Sterling’s recovery is no overnight affair either. Over the past six months it has been the best performing G10 currency against the dollar,” he noted.

Among the big dollar earners getting the cold shoulder today were drugs giant AstraZeneca PLC (LON:AZN), marketing conglomerate WPP PLC (LON:WPP), fags makers Imperial Brands PLC (LON:IMB) and British American Tobacco plc (LON:BATS) and booze flogger Diageo plc (LON:DGE), all of which are sporting losses of between 1.6% and 2.3%.

11.55am: Downgrades dog retailers Marks & Spencer and Dixons

In the run-up to midday, the Footsie’s losses were lengthening, with fallers outnumbering risers by around two-to-one.

The FTSE 100 was down 34 at 7,698, with Sage the biggest faller after an underwhelming first-quarter trading update.

Marks and Spencer Group Plc (LON:MKS) was in the dog-house, down 3.5p at 304.3p after Credit Suisse downgraded the stock to ‘underperform’ from ‘neutral’.

The same broker made the same downgrade to another retailer, Dixons Carphone Plc (LON:DC), which fell 2.2p to 204.9p.

The mid-cap FTSE 250 was down 76 at 20,596 with newsagent WH Smith Plc (LON:SMWH), down 2.3% at 2,084p, among the prominent fallers after its trading update this morning.

It posted a drop in sales over the Christmas trading period as its high street stores continued to struggle.

Like-for-like (LFL) sales at its high street shops fell 4% year-on-year but the travel side of the business – stores located in train stations, airports and the like – saw LFL growth of 3%.

“Christmas was a stationary affair for WH Smith, with sales flat-lining across the group as a whole,” quipped Laith Khalaf at Hargreaves Lansdown.

“The newsagent is now a two tier company, with a high street estate, which is withering on the vine, and a travel business, which is growing at quite a clip,” he added.

The market was more receptive to the update from pubs group JD Wetherspoon PLC (LON:JDW).

The shares rose 3% to 1,308p after “Spoons” revealed sales in the second quarter of its financial year were 6.0% higher than a year earlier, though it warned that “similar outperformance in the second half will be more difficult to achieve”.

Mark Brumby of Langston Capital observed that this was a good performance as the company was going up against some tough comparative figures (comps) from a year earlier.

“Certainly H2 comps will be tougher,” Brumby said, and the group admitted it faced a number of headwinds.

“JDW’s shares trade at over 18x this year’s earnings, which is not prima facie cheap; however, the group is a superlative operator and, with Mr Martin’s views on Brexit well-known, the company is likely to continue to pull out all the stops to show that Brexit and the economic uncertainty that surrounds it, will not prevent it from reporting good numbers,” Brumby suggested.

“Some investors may be inclined to take profits, however,” he noted.

Not everyone agrees that Spoons is a superlative operator.

10.35am: Dollar-earning blue-chips friendless as sterling rallies

Despite miners rebounding today, the blue-chip index is in the red, albeit off the bottom.

The FTSE 100 index was down 22 at 7,710 following the release of UK earnings and unemployment data.

The unemployment rate for November remained unchanged from October’s level of 4.3%, in line with the consensus forecast.

Year-on-year growth in average weekly wages (including bonuses) dipped to 2.3% in November from 2.4% the month before, although the headline rate held steady, as expected, at 2.5%.

“Wage growth still is recovering only at a modest pace, enabling the MPC [Monetary Policy Committee] to take a long pause before the next interest rate increase,” said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

The number of people in employment increased by 102,000 but bosses’ pressure group, the CBI, acknowledged that higher inflation meant living standards remain under pressure.

“With businesses already concerned about skills shortages, it’s essential that current reforms help people gain the skills that businesses need, ensuring the UK has a workforce fit for the 21st century, leading to higher productivity and pay,”  said Matthew Percival, the head of employment at the CBI.

Accountancy software group The Sage Group PLC (LON:SGE) led the Footsie’s retreat after a disappointing update covering the first quarter of its financial year, which runs to the end of September.

Group organic revenue growth in the final three months of 2017 was 6.3%, compared to management’s guidance of expected growth of around 8% for the year.

The shares were down 5.9% at 773.2p.

Silver miner Fresnillo PLC (LON:FRES) was the Footsie’s best performer after a production update.

The shares rose 2.7% to 1,370.5p in a generally resurgent mining sector after the company unveiled record annual silver production of 58.7mln ounces, up 16.6% year-on-year.

8.45am: FTSE 100 off to a slow start

The FTSE 100 got off to a slow start, falling 16 points to 7,715.70 as it took its cue from Asia’s main markets, which produced lacklustre performances.

The quantum of the movement here in the UK and the anaemic volumes tended to suggest City traders were keeping their powder dry until after the release of UK employment data later this morning.

The Footsie’s big loser early on was the software group Sage (LON:SGE) after a fairly tepid trading update. The stock fell 4.2%.

Marks & Spencer (LON:MKS) wasn’t too far behind after the London arm of the influential investment bank Credit Suisse downgraded stock in the retailer. The move to ‘underperform’ wiped 2.3% from the Marks share price.

One of the junior market’s big hitters was in fine form with analysts once again having to upgrade their forecasts for Fevertree (LON:FVR) after the drinks company’s latest assessment of prospects.

The shares rose 7.6%, cementing the firm’s place as AIM’s third largest company and taking it over the £3bn market capitalisation mark.

“There is no stopping the momentum behind the Fevertree brand – yet another upgrade,” said Neil Wilson of ETX Capital.

“I’m losing count of how many times management has raised its profit expectations but my estimates this was the sixth upgrade in little over a year – exceptional performance by a brand that has simply got everything right so far. We’re running out of superlatives.”

Proactive news headlines:

International specialist staffing group Empresaria Group plc (LON:EMR) is set to deliver record adjusted profits for 2017, in line with expectations.

Directa Plus Plc (LON:DCTA) has received a US patent for its graphene-based flame-retardant textile, Graphene Plus (G+). Giulio Cesareo, chief executive, said the patent consolidated Directa Plus’s position as one of the leading graphene companies in the textile segment.

ImmuPharma PLC (LON:IMM) said it received strong backing from existing and new institutional investors for its £10mln City fundraiser. The cash, raised by issuing shares at 144p each, will support future investment in the P140 peptide platform. It will also be used to meet the drug developer’s working capital requirements.

The provider of cloud-based e-commerce marketplaces, cloudBuy PLC (LON:CBUY), halved its losses in 2017, though revenue came in below expectations.

Bango plc (LON:BGO) has raised £5mln placing shares at 180p a share and is to acquire Audiens, the data management subsidiary of Digitouch.

Faron Pharmaceuticals Ltd (LON:FARN) has been granted investigational new drug (IND) status for its flagship drug, Traumakine, by the US regulator.

The Food & Drug Administration has already said Faron can proceed directly to a biologics licence application (BLA) if the results from a European phase III clinical study are positive.

Oracle Power PLC (LON:ORCP) has appointed Mark Steed as its new interim chairman to replace Anthony Scutt, who will return to his role as senior independent director. Oracle is working towards the financial sign-off of its Thar thermal power station project in Pakistan and said it would appoint a permanent chairman once that process concludes.

Strategic Minerals Plc (LON:SML) is to increase its exploration efforts at the Hanns Camp project in Australia after new drilling showed numerous nickel and cobalt indications. Eight of the holes indicated nickel above a grade of 0.63% with additional cobalt credits.

SDX Energy Inc (LON:SDX, CVE:SDX), in a statement after Tuesday’s market close, told investors that it is expected to achieve higher production volumes in 2018. The project update comes as the company hosts an analyst visit in Morocco.

Amryt Pharma PLC (LON:AMYT), the biopharmaceutical company focused on rare and orphan diseases, has announced the appointment of Derval O'Carroll as head of Regulatory Affairs. The group said, as it continues its pivotal Phase III trial, EASE, to assess the efficacy of AP101 in Epidermolysis bullosa, the rare genetic skin disorder, Derval will assume responsibility for engagement with regulatory agencies.

Eurasia Mining plc (AIM:EUA) announced that, further to its announcement in November 2017, Alexei Churakov has now completed the purchase of a 7% minority stake in the AIM listed gold producer’s subsidiary ZAO Kosvinsky Kamen which solely owns and holds the West Kytlim project. After the transaction, it added, KK is 68% owned by Eurasia.

Savannah Petroleum PLC (LON:SAVP) said that, for the purposes of facilitating the company's proposed acquisition of the Seven Group assets, it has commenced an exchange offer and consent solicitation with respect to Seven’s 10.25% senior secured notes.

The Marketing Group PLC has confirmed that it let Nice & Polite go into liquidation on 18 December 2017 following a Court Order to wind up the business and the group’s desire to streamline its corporate structure. It added that Nice & Polite was not material to the Group’s financial performance, having made a loss after tax of approximately £6,000 in the year to 31 December 2017.

6.45am: Reverse gear

The FTSE 100 is expected to start Wednesday’s trading on the back foot after a mixed showing overnight from US equities, although the Nasdaq posted more record numbers, and falls by Asian markets.

Spead betting firm CMC Markets sees the UK blue chip index starting 9 points lower at 7,722 having added 16.39 points on Tuesday.

In New York, the tech-laden Nasdaq led Tuesday’s session, rising 52 points or 0.7% to close at 7,460, whereas the S&P 500 added 0.22% to 2,839 and the Dow Jones was actually slightly lower, down 3 points to 26,210.

In Asia, meanwhile, Japanese stocks were trading lower. The Nikkei lost 183 points or 0.76% to trade at 23,940. Hong Kong’s Hang Seng moved slightly higher, adding 9 points or 0.02% to 32,941, while the Shanghai Composite was up 5 points or 0.14% to 3,551.

Macroeconomic factors and foreign exchange movements have remained an influence on equity benchmarks in recent weeks, with the relative strength/weakness of the pound being particularly influential in London where the FTSE 100 hosts so many multinational, US dollar earning stocks.

“The pound has continued to go from strength to strength over the past few days particularly against the US dollar, pushing above the $1.4000 level yesterday for the first time since the day after the Brexit vote in June 2016,” said Michael Hewson, analyst at CMC Markets.

“One of the factors helping has been the continued weakness in the US dollar which hit a fresh three year low against a basket of currencies in Asia this morning, and falling below the 90.00 level for the first time since December 2014.

“Confidence in the US dollar has been on the slide for a while now and this week’s news that the US government decided to impose tariffs on solar panels and washing machines has raised concerns that these measures could herald a wider move towards additional trade tensions, particularly between the US and China.”

There’ll be more economic triggers for forex watchers later today, with the release of UK employment statistics likely to be a focus for the market.

Significant events expected:

Trading updates: JD Wetherspoon PLC (LON:JDW), WH Smith Group PLC (LON:SMWH), Fevertree Drinks PLC (LON:FEVR), Sage Group PLC (LON:SGE), Empresaria Group plc (LON:EMR), Hotel Chocolat PLC (LON:HOTC), Getbusy PLC (LON:GETB), STM Group Plc (LON:STM)

Finals: Crest Nicholson Holdings PLC (LON:CRST), Staffline PLC (LON:STAF)

Production reports: Fresnillo PLC (LON:FRES), Polymetal PLC (LON:POLY)

Economic data: UK unemployment, average earnings; US house price index

Around the markets:

  • Sterling: US$1.402, up 0.2%
  • Gold: US$1,343 an ounce, up 0.55%
  • Brent crude: US$69.86 a barrel, up 1.1%
  • Bitcoin: US$10,956 per coin, up 1.08%

City Headlines:

  • Average UK motor insurance premiums paid in 2017 highest since 2012 – Reuters
  • Vince Cable says government might be tied to its RBS stake for 10 years - City A.M.
  • Carillion state aid not guaranteed after the end of January - Financial Times
  • Markets have 'very little capacity' to deal with rate moves, Barclays CEO says - CNBC
  • Trump tariffs on solar panels, washing machines could raise prices - USA TODAY
  • Disney to Give Employees $1000 Bonuses in Wake of Tax Reform – Bloomberg
  • US safety board opens investigation into second Tesla Autopilot crash - Los Angeles Times

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