FTSE 100 closes lower
Theresa May taking questions in Commons
EU and UK agree draft political declaration
FTSE 100 closed in the red as resource stocks got hit and as the pound gained on the back of apparent Brexit progress.
A draft political declaration has been agreed by the EU and the UK ahead of an EU summit on Sunday. The final look of what Brexit will look like still has to go through the UK parliament though.
The UK blue-chip benchmark closed down nearly 90 points at 6,960, while the FTSE 250 shed nearly 55 points at 18,530.
US markets are closed due to the Thanksgiving holiday.
2.45pm; FTSE 100 lower
In the absence of trading in the US to provide a lead, market commentators are looking to the European Central Bank to provide a steer.
“The minutes of the October meeting of the ECB’s Governing Council show some signs of doubt about the growth picture, though the ECB felt it was too soon to change its assessment. This could still happen in December, though,” observed Dutch finance house, ING.
“At the same time, the Governing Council remained confident that underlying inflation would pick up on the back of higher wages and the build-up of pipeline price pressures,” ING added.
None of which had much effect on the FTSE, where the recovery of sterling on foreign exchange markets was of more interest.
The FTSE 100, laden as it is with big dollar earners, was down 80 points at 6,970, as the pummelled pound got up off the canvas and rose just over a cent against the greenback to US$1.2881.
“The pendulum has swung in favour of Sterling, as the bulls took control this afternoon following news that the EU and UK have agreed on a draft Brexit agreement,” commented Lukman Otunuga, a research analyst at FXTM.
“With the European Union Council President Donald Tusk stating that the draft has been ‘agreed in principle at a political level’, this certainly paves the way for the Brexit summit to go ahead on Sunday. While the Pound has the potential to remain buoyed in the near term as bulls exploit this welcome development, there are still some major headwinds down the road. Even if a breakthrough is achieved with EU leaders, the next major challenge will be for the draft Brexit agreement to be passed through parliament,” Otunuga continued.
“With a strong sense of pessimism and negativity in the air over parliament approving any deal Theresa May brings forward, fears of a no-deal Brexit outcome will most likely weigh on the mind of many investors. A scenario where the UK ends up crashing out of the European Union with no deal in place will be the knock out blow for the British Pound.”
Sterling has risen to its highest level against the dollar in a week.
The sports betting and gaming group’s shares rose 12p to 1,008p following news of the acquisition of Neds International for an initial consideration of around £37mln. Depending on how the acquired Aussie digital sports betting specialist performs, the purchase price could rise to around £52mln.
Online food ordering platform operator Just East PLC (LON:JE.) fattened up 16.6p at 591.2p after JP Morgan upgraded the stock to ‘neutral’ from ‘underweight’, even as it cuts its target price to 603p from 742p.
The shares were up 12.4% at 680p after the company said it would buy up 95.2% of the shares it offered to buy by way of tender at 560p a pop.
1.00pm: The large contingent of dollar earners in the Footsie are suffering
Having been on the cusp of suffering a three-digit decline, the FTSE 100 bucked its ideas up.
The FTSE 100 was down 69 (1.0%) at 6,981, with fallers among the index’s constituents outnumbering risers by three-to-one.
With a number of heavy dollar earners among the Footsie fraternity, the fact that sterling has staged a revival today has not helped the blue-chip index’s cause.
“There’s been a strong move higher in the pound in recent minutes following positive Brexit-related reports. EU and UK negotiators are said to have agreed upon a draft text of future ties post-Brexit and it appears that the relationship may more closely resemble the existing one than previously thought. Remarks of a ‘deep’ customs cooperation and a commitment to build on a “single customs territory” are no doubt welcome and traders have rushed to by the pound in response,” reported David Cheetham at XTB.
“Overall these comments appear to be a case of the EU supporting Theresa May’s deal and throwing their weight behind it. Sterling has rallied over 100 pips or close to 1% on this, to trade back above the US$1.29 level and given the recent negativity around Brexit there’s plenty of scope for a relief rally should this move gain traction,” Cheetham suggested.
Joshua Roberts, an associate at JCRA, the independent financial risk management consultancy, said: “Sterling has spiked on the back of a leaked copy of the declaration on future relations between the UK and the EU. Despite the positive language, it is difficult to find much in the text that we didn’t know already. There is a reasonable chance that the market response is the result of trading algorithms activated by a positive headline, rather than the start of a bigger move,” Roberts opined.
The FTSE 250, whose constituents tend to be less bothered by sterling’s fluctuations, was down 51 points (0.27%) at 18,534.
Sector peer Spirax-Sarco Engineering PLC (LON:SPX) was also on the slide, down 4.6% at 6,030p after Morgan Stanley slashed its target price to 6,260p from 7,330p and moved to ‘equal weight’ from ‘overweight’.
The interims statement from Majestic Wine is headlined ‘steady as she goes’, but if you thought that meant that the group had been able to hold profits in the face of increased investment and a challenging market, then you might have to think again, as H1 adjusted PBT was 63% down at £2.5m and the company is dampening down short-term profit expectations,” noted independent retail analyst, Nick Bubb.
Ouch! Higher sales at Majestic Wines but swings to a loss in first half and lowers expectations for year. Drop of 12% in shares probably takes in all the bad news but I wouldn't encourage anyone to buy at this stage. Let's hope Christmas brings some cheer.— Rodney Hobson (@RodneyHobson) November 22, 2018
Fiona Cincotta at City Index said profits were expected to fall due to increased investment in the business but not by as much as this.
“Majestic Wine clearly is feeling the pinch as Brexit uncertainty and lacklustre wages growth deter spending on non-essential items. The online wine market, meanwhile, is getting more crowded, with dozens of competitors now vying for a bigger slice of the pie,” she commented.
“Revenue at Naked Wines is growing and margins are expanding, while repeat customers contribute a greater proportion of sales and staff retention rates improve. Investors, however, will want to see a big improvement in the most important figure of the bunch – net profit – before getting quite as excited as management,” she concluded.
The shares were down by 17.2% at 310p.
11.00am: The Footsie moves close to a triple-digit decline
The Footsie was closing in on a triple-digit fall, as traders closed positions as a precaution on what is Thanksgiving Day in the US.
“Naturally, the bank holiday in the US leaves us with barely any market events of note for the rest of the day, with eurozone consumer confidence and a speech from BoE policy maker Michael Saunders the only notable items. Even these are unlikely to have much, if any, impact on the markets which means focus will be entirely on the political landscape with Europe providing plenty of drama to compensate for the lack of activity,” suggested Craig Erlam at Oanda.
The oil price has fallen sharply, with Brent crude for January delivery down 0.8% at US$62.69 a barrel but the Footsie’s two integrated oil giants – BP and Shell – have reacted phlegmatically, with falls in line with the broader market trend.
Elsewhere in the oil sector, Egdon Resources PLC (LON:EDR) was up 13.2% at 8.60p after the North Lincolnshire Council's planning officer recommended that the company’s development application for the Wressle field be approved at next Wednesday’s council meeting.
Union Jack Oil PLC (LON:UJO) and Europa Oil & Gas (Holdings) PLC (LON:EOG) both have sizeable stakes in the Wressle oil field – the former has a 30% stake and the latter a 27.5% interest – but neither seemed to derive any benefit from the announcement; Union Jack was down 2.35 and Europa was unchanged.
9.30am: Footsie gets cold feet
It is a cold and chilly morning in London and the chill seems to have spread to London’s listed blue-chip shares.
Centrica PLC (LON:CNA) was the biggest faller, shedding 7.3% after a profit warning and some bleak news on cash flow that raises questions about the company’s ability to maintain its dividend – widely seen as the primary reason why anybody would want to hold the shares.
“Perhaps it would be better if British Gas owner Centrica just cut its dividend and got it over and done with. A 9% dividend yield suggests the market is expecting such a move at some point anyway,” observes Russ Mould at AJ Bell.
“Today’s trading update, which warns of a hit to earnings and cash flow from the new energy price cap, also says the dividend will be maintained at 12p so long as it meets targets on year-end net debt and operating cash flow.
“Presumably Centrica has a good picture on where these numbers will end up, given there are only a few weeks of 2018 remaining,” he added.
“The tough competitive environment is reflected in the 372,000 customers lost in the four months to the end of October, although this is not as alarming as the 823,000 lost in the same period in 2017.
“The company has delivered some significant cost savings and appears to be keeping a lid on its borrowings; however, only a return to growth would really reassure on the sustainability of the dividend.
“Centrica is somewhat unusual in the utilities space given its material oil and gas production arm. While this does provide some diversification from the consumer energy business, it also comes with its own headaches attached, such as output recently being hit by operational issues,” Mould noted.
Severn Trent reported an over 4% increase in half-year underlying profit on Thursday as it announced it had now fully allocated the £100m totex reinvestment announced in 2017— Mehrdad Yousefi (@MY21_Oracle) November 22, 2018
The shares were down 2.5% at 1,865.5p despite the board recommending an increase in the interim dividend to 37.35p from 34.63p the year before.
The group said it incurred extra costs as a result of increasing water production during hot, dry summers … that seems a long time ago now.
8.45am: FTSE 100 in reverse gear as Italy takes over from Brexit as the EU's main bugbear
The FTSE 100 gave up some of Wednesday’s gains as the budget wrangling between the EU and Italy dented sentiment with the index of blue-chip shares losing 39 points to trade at 7,011.52.
“The relationship between Rome and Brussels was further strained yesterday when the EU said it would discipline the Italian government for its planned budget deficit,” said David Madden of CMC Markets.
“The anti-establishment coalition didn’t bend to the might of the EU, and joint deputy prime minister, Matteo Salvini, said that sanctions would be disrespectable to Italians.
“Italy is a net contributor to the EU, and the country has the third largest government bond market in the world, and Brussels better not rock the boat as a spike in Italian government bond yields could spark another round of the eurozone debt crisis.
“Should we see Italian banks get into trouble, the fallout is likely to be far greater than the Greek crisis.”
A net 372,000 bill-payers cancelled their direct debits, a 3% drop. That said, the company still expects to hit its full year's earnings guidance.
“Centrica shares have underperformed the wider market significantly over the past five years, but done much better than the FTSE 100 index in 2018,” said Lee Wild, stocks guru at Interactive Investor.
"However, a sprinkling of negatives in this third-quarter trading update have overshadowed solid progress in key areas.
“Customer retention and the generous dividend payment have been and remain two major factors for shareholders. Centrica’s British Gas arm has never been much good at the former, and another 372,000 customers have been lost in the past four months.”
Elsewhere, the mining stocks were on offer led by silver digger Fresnillo (LON:FRES), while Johnson Matthey (LON:JMAT), which produces platinum for catalytic converters, succumbed to profit-taking after Wednesday’s prodigious rise on the back of a positive trading update.
Proactive news headlines:
North Lincolnshire’s planning officer has recommended that local councillors approve planning consent for the development of the Wressle oil field, in which Union Jack Oil PLC (LON:UJO) and Europa Oil & Gas (Holdings) PLC (LON:EOG) have sizeable stakes.
Bluejay Mining PLC (LON:JAY) has updated on the progress of its environmental and social impact assessments as work on its pre-feasibility study at the Dundas Ilmenite project in Greenland.
OptiBiotix Health PLC (LON:OPTI) said it has signed a distribution agreement for its cholesterol and blood pressure reducing LPLDL bacteria strain in Greece and Cyprus. The unnamed local partner for CholBiome was chosen for its customer network, which also covers the Middle East and its track record of promoting and developing products. It also has access to a number of international clinics.
Directa Plus PLC (AIM:DCTA), a producer and supplier of graphene-based products, said it has made good progress in the second half of 2018. In a brief trading update, the company said it was confident of achieving consensus market estimates for the full year, including revenues of €2.3mln.
Active Energy Group PLC (LON:AEG) bosses have hit back at an article in a local Canadian newspaper which suggested that local authorities have yet to issue the firm with timber permits. Earlier this week, Active said it had received approval from the Ministry of Fisheries and Land Resources of the Crown Province of Newfoundland and Labrador for the issue of two five-year commercial timber permits.
Higher oil prices are starting to feed through into the performance of rig operator ADES International PLC (LON:ADES). The last three months was a strong quarter said Mohamed Farouk, chief executive. Utilisation rates rose to 83% helped also by the acquisition of three jack-up rigs from Nabors.
US Oil & Gas PLC said it remains intent on seeking a stock exchange listing but said work on the Eblana-3 well remains the priority.
6.45am: FTSE 100 called lower
The FTSE 100 index is expected to edge back on Thursday following Wednesday’s strong gains after US markets lost an early rally to end flat overnight, with Wall Street to be closed today for the US Thanksgiving holiday.
Spread betting firm IG expects the blue-chip index to open around 7 points lower at 7,043, having added 102.31 points on Wednesday.
Overnight on Wall Street, the Dow Jones Industrials Average closed 0.95 points lower at 24,464.69, giving back all of an earlier bounce following a slump in the previous session which was precipitated by a tech sell-off, with investors simply taking their chips off the table ahead of the holiday.
Meanwhile, Asian markets were mixed today, with Japan’s Nikkei 225 index rallying 0.5% higher as exporters benefited from a weaker yen, but Hong Kong’s Hang Seng index slipping 0.1% as investors worried about slowing global growth and the US/China trade war impact.
On currency markets, the pound remained fairly cautious against both the dollar and the euro as traders awaited further news on the ongoing Brexit deal saga, with EU leaders gathering for a crucial meeting at the weekend to make a decision on the agreement.
Centrica to add fuel
On the corporate front, investors in British Gas parent Centrica PLC (LON:CNA) will be hoping there won’t be a repeat of last year’s profit warning in the FTSE 100-listed firm’s latest trading update due today.
In a preview, Graham Spooner, investment research analyst at The Share Centre, said: “In September the regulator announced the terms of caps on energy prices, which were less severe than expected and were viewed as a positive for the group and its ability to maintain the dividend next year.”
He also added: ”Any updates on cost savings and its ability to hit financial targets will be worth noting.”
Severn Trent on tap
Back in the summer, the FTSE 250-listed firm maintained its outlook for the full year, and said: “We have made a good start to the financial year and there has been no material change to current year business performance or outlook.”
Operationally, efforts have been fixed on the delivery of a £100mln investment programme and on Thursday the market will be keen for an update and any potential commentary about any other forward-looking initiatives.
Wine and beer
Investors will be hoping to pop a few champagne corks when wine-seller Majestic Wines PLC (LON:WINE) releases its interims.
The company swung to a full year profit, driven primarily by its Naked Wines division. At the time, however, chairman Greg Hodder said the short-term market in the UK remained “tough”, although he added the firm was confident of meeting its expectations for the new financial year.
M&B, which owns Harvester, Miller and Carter, and Toby Carvery is expected to report higher full-year sales, although City broker Liberum Capital doesn’t reckon that will filter down to the bottom line.
Significant events expected on Thursday, November 22:
US Thanksgiving holiday
Interims: Severn Trent PLC (LON:SVT), Majestic Wine PLC (LON:WINE), Mothercare PLC (LON:MTC), MITIE Group PLC (LON:MTO), CMC Markets PLC (LON:CMCX), Hornby PLC (LON:HRN), Keller Group PLC (LON:KLR), Assura PLC (LON:AGR), Charles Stanley Group PLC (LON:CAY), Caledonia Investments PLC (LON:CLDN), IMImobile PLC (LON:IMO), Redcentric PLC (LON:RCN), Mountview Estates PLC (LON:MTVW), John Laing Environmental Assets Group Limited (LON:JLEN), First Property Group PLC (LON:FPO), TR Property Investment Trust PLC (LON:TRY)
Economic data: US weekly jobless claims
Around the markets:
- Sterling: US$1.2785, down 0.1%
- Gold: US$1,227.29 an ounce, up 1.3%
- Brent crude: US$63.02 a barrel, down 0.5%
- Britain and the EU made “good progress” on Wednesday evening towards agreeing the final element of Britain’s EU exit package – Financial Times
- Leading economists have warned that US economic growth will be cut in half by the trade war – Daily Telegraph
- Berkeley Group bosses were accused of engaging in years of bribery with a partner at a major estate agent, according to papers filed in a pair of lawsuits – The Guardian
- Ikea is cutting 7,500 office jobs worldwide, including 350 in the UK, as it focuses on improving its online operation and small outlets – The Guardian
- Extra Energy has become the latest small energy provider to collapse, hitting over 100,000 customers just as winter starts to bite – Daily Mail
- Ryanair has been taking record numbers of flight bookings this week despite Brexit looming – The Guardian
- Amazon has suffered a major data breach exposing customer names and email addresses on its website, just two days ahead of Black Friday – The Guardian
- Mark Zuckerberg has dismissed suggestions that he should step down as the chairmanship of Facebook, insisting that such a move would not make sense – The Times
- Bombardier will cut almost 500 jobs in its Belfast operations, the engineering group announced on Wednesday, a fortnight after revealing that it planned to reduce its global workforce by 5,000 – The Times
- Abu Dhabi’s International Petroleum Investment Company is suing Goldman Sachs over the Malaysian 1MDB scandal, alleging that the American bank bribed its officials as part of a “massive global conspiracy” – The Times
- Co-founder and chief executive of UK-based online gambling group Bet365, Denise Coates, was paid £220 million last year, maintaining her position as one of the world’s highest remunerated executives – Financial Times
- A small group of bearish hedge fund managers have reaped windfall from the stock market correction of the past two months; Crispin Odey’s bets on falling stocks helped his fund gain 7% last month – Financial Times