FTSE 100 averts drop below 7200
Pound gains on May’s Brexit speech best since 2008
Pound gains 3% versus US dollar to $1.2403
Pound boosted versus euro by 1.83% to 1.157 euros
The FTSE 100 continued its sharp slide on Tuesday after the pound surged at its strongest intraday pace since 2008 following Theresa May's speech on Brexit which was seen as offering leadership on the course for quitting the European Union.
For 14 sessions through to January 13, the blue-chip index had reaped the rewards of a weakening pound amid Brexit uncertainty, but on Monday and again on Tuesday the index lost ground, ending this session down 1.5% at 7220.
“The binary relationship between the FTSE and the pound is still going strong but the price moves have finally reversed. The pound’s enduring drop and the corresponding record winning run in the FTSE has come to an end, for now,” said Jasper Lawler, senior market analyst at London Capital Group.
The FTSE 100 share index had already been trading lower, but dropped further as the pound strengthened. Multinational firms on the FTSE 100 lose out from a stronger pound because profits earned overseas are worth less when they are translated back into sterling.
The pound soared back above the $1.23 mark following May's speech and closed up 3% at $1.2403. Against the euro, the pound was up 1.83% at 1.157 euros.
The biggest loser was British American Tobacco plc (LON:BATS) down 3.8% to 4580p after the company said it had agreed to a deal to take control of US rival Reynolds American, Inc. (NYSE:RAI).
The $49.4bn (£40bn) deal will see BAT buy the 57.8% stake in Reynolds that it does not already own. Reynolds shares were trading 3.1% higher at $57.74 on Wall Street.
On the flipside, the biggest gainer was Rolls-Royce (LON:RR.) which jumped nearly 7% before losing some of the gains to end up 4.4% at 694.50p after the engineering firm agreed to pay £671mln to settle bribery and corruption cases with UK and US authorities.
The FTSE 250 of midcaps ended down 0.4% at 18,240 and led by Ferrexpo plc (LON:FXPO) down 4% at 124.7p. The company, which is an iron ore pellet producer, earned an average rating of “Sell” from the twelve ratings firms that are currently covering the company. Seven research analysts have rated the stock with a sell recommendation, three have assigned a hold recommendation and one has issued a buy recommendation on the company. The average 1-year price objective among analysts that have updated their coverage on the stock in the last year is 5278p.
The FTSE AIM 100 Index ended down 0.6% at 4169 and the FTSE AIM All-Share Index was down 0.4% at 872.
Only 26% of London gained on Tuesday, versus 39% which fell.
1500 GMT - FTSE 100 tumbles after May's Brexit speech
FTSE 100 down 83 to 7,243
Brexit plans sparks a sell-off
Soft start on US also affects sentiment
So, Theresa May has spoken, and the foreign exchange markets loved what she said.
Or maybe they just loved that she said something.
Either way, sterling is battling back against the greenback. A quick gander down the page will see that sterling bought US$1.2118 at around 5.30 this morning; it is now buying US$1.2388.
According to Carolyn Fairbairn, the director general of business-focused pressure group the CBI, businesses will welcome the greater clarity provided by May's speech.
“Ruling out membership of the Single Market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU, but businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU,” she suggested.
The Footsie's reaction suggested otherwise. At around 3pm, the FTSE 100 index was down 83 points at 7,243.
British American Tobacco plc (LON:BATS) may have chosen the wrong day to announce it has secured support of the independent directors of American Reynolds Inc (NYSE:RAI).
It has had to up its bid by about US$2.4bn to win over the directors, and increase the cash element – paid in dollars, not sterling – of the cash plus shares deal.
BATS shares were off 2.8%.
Among the small caps, dual-listed Atalaya Mining PLC (LON:ATYM, TSE:AYM) found the market hard to please after its operations update.
The company, once known as Emed Mining, controls the famed Rio Tinto mine in Spain. Shares came off 6.2%, despite copper production in 2016 being towards the top end of its guidance range.
Noon ... the waiting is over
FTSE 100 was off the pace as Theresa May started her keenly awaited Brexit speech.
Having broken its run of up days on Monday, Footsie was 31 points lower at 7,297.
The pound will be a better benchmark of how markets perceive the PM’s plan, but having enjoyed such a good run upwards recently stock market watchers were being careful.
Ahead of her speech the pound had already rallied a little on rising inflation numbers, while gold also perked up on ‘hard Brexit’ talk.
Standard Chartered led the risers with a 6% rise to 770p. Rolls-Royce (LON:RR.) almost matched after it settled its bribery claims.
10.39 ...FTSE 100 flirts with dip below 7,300
The FTSE 100 is in danger of sliding back below 7,300, with shares dipping on inflation data.
The FTSE 100 was down 24 points at 7,303 shortly after 10.00am.
“UK inflation rose more than expected in December, fuelling further suspicions that the Bank of England may start to mull the need for higher interest rates later in 2017,” suggested Chris Williams at IHS Markit.
The consumer price index in December was up 1.6% year-on-year, versus expectations of a 1.4% rise and up from 1.2% in November.
For what it is worth, the inflation rate is now at its highest rate for 30 months but will not cause any sleepless nights to those who endured the high inflation of the early Thatcher era.
Meanwhile, the house price index rose 1.1% in November and was up 6.7% from a year earlier, having fallen to a 12-month low of 6.4% in October.
Although the Footsie may be lower, it has a couple of impressive performers in its midst.
Power systems developer Rolls-Royce Holding PLC (LON:RR.) was up5.9% after settling with government agencies that were investigating bribery claims; it also sneaked in a small but upbeat on end-of-year trading, with both profit and, in particular, cash expected to be ahead of expectations.
Emerging markets-focused lender Standard Chartered PLC (LON:STAN) was wanted, after it received a 'buy' recommendation from bank of America Merrill Lynch. The shares rose 5.7%.
In contrast, quality testing services provider Intertek Group PLC (LON:ITRK) took a bath, sliding 2.9% as Credit Suisse issued an 'under-perform' rating.
FairFX Group (LON:FFX), the money exchange and services group, soared 13% as it said revenues for 2016 had been ahead of expectations.
“The combination of canny marketing spend, a strong digital operating platform and competitive rates delivered 80,082 new retail customers in 2016, bringing the Total to 588,130,” noted house broker Cenkos.
“The outlook for both strong volume growth and stronger margins reaffirms our confidence in the FairFX strategy, business model and management team. A 2018E P/E of 8.9x is a low price to pay for these strong growth prospects,” it suggested.
8.50am ... FTSE 100 down 26
FTSE 100 opened lower as attention was fixed firmly on Theresa May and her speech to clarify the UK’s Brexit plans.
The index was 26 points lower at 7,301 shortly after trading got under way despite good gains for Rolls–Royce (LON:RR.), which has settled its bribery claims for £671mln.
The aero-engine maker settled with the UK Serious Fraud Office (SFO), the US Department of Justice and Brazil's Ministério Público Federal.
BAT Industries PLC (LON:BATS) was flat despite it agreeing a deal to buy out the outstanding shares of US associate Reynolds for US$49.4bn, an additional US$2.4bn on top of its original offer. Shares were up 18p to 4,781p.
Learning Technologies Group PLC (LON:LTG) starred among the small caps as it reported margins and results were ahead of expectations as recent acquisition Rustici pulled its weight. Shares rose 12% to 42p.
6.14am ...FTSE 100 to take small step back as it waits on May's Brexit barrage
Having proved yesterday it can reverse, the FTSE 100 seems set to do it again today.
Spread betting quotes point to the top-share index opening at around 7,316, down 11 points.
US markets were closed yesterday, so there is no guide from that source to point the way for the Footsie.
In Asia, the markets have been mixed. In Japan, the Nikkei 225 was off 220 points at 18,874, while in Hong Kong the Hang Seng index was up 85 points at 22,803.
On the home front, focus will be on the speech from Theresa May, in which the prime minister is expected to lay out her vision on how Britain’s exit from the European Union will proceed.
“At this stage her speech could leave more questions rather than answers. For example, if she announces that we will leave the single market and the customs union, as expected, then what will she replace it with?” asks Kathleen Brooks at City Index.
“If she says that our most important industries will be protected, then what 'special' deals will she set up with Brussels to ensure that our financial sector doesn’t move to Frankfurt, or that foreign business owners don’t shift overseas?
“Even publicly stating that she sees us leaving the single market could trigger questions regarding her legitimacy to do so, especially ahead of a court ruling that could force the government to hold a Parliamentary vote on the minutia of their Brexit plans,” Brooks added.
The speech probably has more ramifications for sterling than for equities, which seem to have taken the prospect of a 'hard Brexit' in their stride.
Traders will also be chewing over the speech last night by the governor of the Bank of England, Mark Carney.
There was some good news, with Carney conceding that the UK economy had remained more resilient than expected, as consumers continued to splash the cash in the wake of the Brexit vote, but that could change as the effects of a weaker pound start to push up prices.
“It remains the case that the outlook for inflation will depend on the evolution of the prospects for demand, supply and the exchange rate. Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target,” Carney said.
“The Governor did pointedly observe that since the November Bank of England forecasts, there have been signs of continued solid UK consumer momentum and a stronger growth outlook globally. This hints that the Bank of England could be raising its near-term UK growth forecasts in its February Quarterly Inflation Report,” wrote Howard Archer, the chief European and UK Economics at IHS Markit.
“However, Carney also observed that episodes of consumption-led growth tend to be both slower and less durable,” Dr Archer added.
“It currently looks more likely than not to us that the Bank of England will be keeping monetary policy unchanged not only through 2017 but for a prolonged period (maybe out to 2020). We believe the Bank of England will be pretty tolerant on the probable appreciable inflation overshoot given the prolonged, highly uncertain outlook that the UK economy is likely to face as the government negotiates the exit from the EU,” Dr Archer said.
Talking of inflation, the consumer prices release for December is due at 9.30 today. Expectations are that the consumer price index will be up 1.4% year-on-year, compared to a 1.2% rise in November.
On the corporate front, traders will be getting their teeth into Greggs PLC (LON:GRG), the hot snack seller.
The update will cover the fourth quarter, including Christmas, although this is one High Street dweller that does not place too much emphasis on Yule-time, unless people have taken to buying each other sausage rolls for Crimbo.
Total sales were up 5.6% year-on-year for the 13 weeks to 1 October, helped by new shop openings.
Like-for-like sales were up 2.8%, so that's the benchmark.
Around the markets
- Sterling: US$1.2118, up 0.72 cents
- Gilts (10 year yield): 1.405%
- Gold: US$1,211.60 an ounce, up US$15.60
- Brent crude: US$55.59 a barrel, down 27 cents
Headlines
- Donald Trump threatens 35% tariff on BMW imports – Financial Times
- British bosses are more upbeat about business prospects this year than almost every other major advanced economy – Daily Telegraph
- London Stock Exchange hits back at claims Frankfurt will seize jobs from the City after merger – Daily Telegraph
- Hard Brexit talk leads to ‘bloodbath’ for sterling – The Times
- Rolls-Royce pays £671 million to settle bribery claims – The Times
- Samsung boss faces arrest as South Korea corruption scandal grows – The Guardian
- Ikea won't invest any of its £524 million green energy fund in UK. until Government backs renewables – The Independent
- Bank saved 250,000 jobs by cutting rates after referendum, says Mark Carney – The Independent
- Poundland to sell £1.50 vests and £7 jeans as it expands clothing range in bid to copy success of George at Asda – Daily Mail
- City bosses finally accept Brexit access to single market not an option – Daily Express
- Shareholder group hits outs at Sports Direct's "disappointing" failure to conduct an independent governance review – City AM