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FTSE 100 flatlines at close as sterling gains on Brexit optimism

The UK blue-chip benchmark closed up 0.68 at 7,053, while the FTSE 250 added over 174 points at 18,985

Rising dollar
Another day and another round of Brexit chat
  • FTSE 100 closes up 0.68 points

  • US blue-chips claw back some of yesterday's heavy losses

  • UK productivity slips back in the third quarter

  • Oil's rally runs out of petrol

FTSE 100 closed in positive territory - just - as trade tensions eased and the pound firmed due to renewed optimism over a Brexit deal.

The text of a draft deal has reportedly been agreed and a cabinet meeting has been called for tomorrow afternoon.

Downing Street had earlier said that a "small number of outstanding issues" had stood in the way of a deal.

The UK blue-chip benchmark closed up 0.68 at 7,053, while the FTSE 250 added over 174 points at 18,985.

Fiona Cincotta, analyst at City Index, said: "The FTSE kicked off trading on the front foot supported by Vodafone’s result and easing trade tensions trumping the US tech stock selloff.

"However, a sharp decline in commodity prices, a Brexit boosted pound and a mixed start on Wall Street dragged the FTSE to the flatline to close."

Commodity stocks were lower on the day, as West Texas Intermediate (WTI) lost 4.05% to $57.15, while Brent crude is down 2.20% to $67.44 following a warning from President Trump that the price of oil should be lower.

Vodafone (LON:VOD) shares were the top gainer on Footsie, adding 7.79%  to 155.60p as the company  slumped to a first-half loss but shares jumped as it maintained the dividend.

The telecoms firm posted a loss of €7.8bn for the six months to September 30, compared to a profit of €1.2bn a year ago.

3.40pm: FTSE in the red after strong start 

The FTSE 100 had a strong start but looks set to have a weaker finish with the index falling back 20 points to 7,032 as the pound gained against the dollar.

The pound is up 0.72% versus the dollar at US$1.2942 after UK data showed wages grew at a faster pace in the three months to September and as concerns about Brexit ease after Downing Street said a "small number of outstanding issues" stand in the way of a deal. 

"This effectively ruined the FTSE’s day. Well, that and a nasty downturn from its commodity stocks, with BP and Shell falling 3.6% and 2.6% respectively and the miners shedding anywhere between 1.5% and 2.5%," said Spreadex's Connor Campbell.

3.00pm: UBS upgrades mining sector, downgrades real estate

UBS has upgraded the European mining sector to ‘overweight’, citing strong cashflows and dividend yields, a positive commodity price outlook, attractive valuations and a potential upside from stimulus.

“With the market partially pricing an end of cycle event but, in our view, the economic cycle having further to go, late cycle plays such as Mining are in a particularly strong position,” UBS said.

The investment bank also downgraded the real estate sector to ‘underweight’.Real estate has outperformed in the year to date despite a rise in yields. However, UBS said earnings per share momentum “seems to be fading and European spreads between corporate bond yields and residential yields have shrunk to the lowest levels since 2013”.

UBS said there will be seven “signposts” to monitor markets – the Italian budget, Brexit, Chinese data, the outlook for US interest rates, US bond yields, whether the rest of the world can catch up with the US and trade wars.

Meanwhile, the FTSE 100 has pulled back slightly, falling 4 points to 7,048.

2.30pm: US stocks rebound at open

US stocks have opened higher after a rough start to the week. 

The Dow Jones Industrial Average increased 55 points to 25,347, the S&P 500 added 7 points to 2,734 and the Nasdaq edged up 36 points to 7,237. 

The three benchmarks closed in the red on Monday, led by a slump in shares of Apple and Goldman Sachs

The mood was lifted following reports about a possible deal to ease trade tensions between the US and China. 

12.30pm: Futures point to higher US open

With spread betting quotes pointing to a firm start on Wall Street, the Footsie has found a new lease of life.

The FTSE 100 was up 20 at 7,073.

“Turning to the US open, and the Dow Jones is set to join the rebound, with the futures having the index rising 150 points as the markets cheer reports that trade talks have been restarted between the US and China. That would only just take the edge off yesterday’s losses, however, when the Dow tumbled as another wave of fear rippled through the pricey tech sector,” commented Connor Campbell, at Spreadex.

Somewhat more sardonically, James Hughes at Axi Trader, notes that “as the saying goes, even a dead cat bounces if it’s dropped from high enough”.

“DOW futures slumped by almost 800 points in the last 36 hours, so there’s certainly scope for some bargain hunting and buying back short positions and although optimism may be emerging off the back of hopes of an improvement in trade talks between the US and China, the Fed is making no secret of the fact the trajectory for interest rates remains upward,” Hughes said.

It has been a busy day for macro-data, with the most recent release from the Office for National Statistics showing UK productivity (measured in terms of output per hour worked) fell back in the third quarter, with output per hour worked down 0.4% quarter-on-quarter.

“This was the second decline in three quarters as output per hour had previously rebounded in the second quarter from a clear relapse in the first quarter of 2018,” noted Howard Archer, the chief economic advisor to the EY ITEM Club.

“The relapse in Q3 2018 reinforces concerns over the UK’s overall poor productivity record since the deep 2008/9 recession.

“The UK has a lot of catching up to do on the productivity front. Indeed, when releasing the full data for the second quarter, the ONS reported that: ‘Productivity in Quarter 2 2018, as measured by output per hour, was 17.6% below its pre-downturn trend – or, equivalently, productivity would have been 21.4% higher had it followed this pre-downturn trend.’

“There is a risk that prolonged uncertainty and concerns over the UK’s economic outlook could end up weighing down on business investment and damaging productivity. A ‘no deal’ Brexit would increase this risk significantly,” Dr Archer suggested.

Oil’s mini-revival appears to have stopped or is maybe pausing for breath. Brent crude for delivery in January was trading 1.8% lower at US$68.87, prompting mark-downs in the likes of oil industry players John Wood Group PLC (LON:WG.), down 3.2%, and BP PLC (LON:BP.), down 2.5%.

10.55am: The morning's gains slowly dissipate

Approaching the last hour of the morning, the Footsie was clinging onto gains.

The FTSE 100 was up 10 at 7,063, a long way from its intra-day high of 7,104.

Favourable responses to trading updates from Footsie constituents are largely responsible for the top-shares index remaining in positive territory.

Vodafone PLC (LON:VOD), up 9%, led the advance after the company improved its cash flow outlook for the full year in its interims, which bodes well for its juicy dividend.

Credit checking firm Experian PLC (LON:EXPN) rose 4.8% after it said full-year revenue would be at the top end of the guidance range.

Melrose Industries PLC (LON:MRO) was wanted, up 4.5%, after the turnaround specialist said it was trading in line with expectations and was confident of delivering improvements in the performance of recently-acquired GKN.

Another holding company, DCC PLC (LON:DCC), was also on investors’ ‘buy’ list after a solid half-year update.

READ DCC confident of another year of profit growth and development

The shares trade on 19.7x projected earnings for the current fiscal year, which is 58% premium to the FTSE All-Share, but this is “fully merited”, according to Peel Hunt, “given the consistently high ROCE [return on capital employed], strong cash generation and capability to continue to deliver the successful acquisition strategy”.

9.45am: Small boost received from the UK wages and jobs release

As it did yesterday, the Footsie made a positive start but this time with resource stocks making only a small contribution.

The FTSE 100 was up 32 at 7,085, having briefly regained the ground above 7,100 earlier in the morning.

The latest UK wages and unemployment data has provided some food for thought.

Wages, including bonuses, rose by 3.0% year-on-year in September, in line with expectations, while the UK unemployment rate rose to 4.1% from 4.0% previously, although the number of persons claiming jobless benefits rose by 20,200 versus expectations of 4,300.

“The British economy continues to defy Brexit uncertainty as wage growth tested decade highs of 3%. The print further backs [Bank of England governor] Carney’s sentiment that the UK labour market has no spare capacity in the UK,” said Balraj Sroya, a sales trader at Foenix Partners.

“Unemployment figures surprisingly rose from 43-year lows to 4.1%, but as a whole today's releases shine a prosperous light on the UK economy with data coming out in harmony with the central bank’s forecasts, suggesting a gradual rate hike strategy will be on the horizon in 2019; however, a no deal Brexit scenario will likely have a drastic impact on economic indicators and derail the Bank of England’s policy implementation,” Sroya added.

Laura Suter, a personal finance analyst at investment platform AJ Bell, said the wage growth numbers were cause for celebrating for UK workers, marking the highest wage growth since the three months to December 2008.

“This means households are now seeing their wages rise by considerably more than inflation, which stands at 2.4%. When inflation is taken into account the increase in wages is the highest since the three months to December 2016.

“The past few years have seen British workers pummelled by a combination of higher inflation and very sluggish wage growth, meaning they have often faced a real terms wage cut; however, the current low unemployment, which stands at 4.1%, appears to have shifted the odds back into workers’ favour, and we’re starting to see wages rise more meaningfully,” she reasoned.

“Retailers on the high street will be hoping this boost to households will mean people loosen the purse strings this Christmas. While we might see some spending, it’s unlikely that we’re going to see a rush to splurge this spare cash.

“The reality for many is that any increase in take-home pay is likely to be funnelled into paying down the large sums of debt many households have taken on in the past few years, including the rising sums on credit cards,” Suter added.

The data also contained some trends that might be of interest to those who enjoy squabbling about Brexit.

"The recent uptick in British nationals in work and the decline in workers from the so-called 'A8' eastern European countries both seem to be accelerating," said Matt Hughes, the senior statistician at the ONS

9.00am: Footsie rallies

The FTSE 100 enjoyed a mini-rebound after it resisted the downward pull of the tech sell-off, which left Wall Street nursing some significant losses and inflicted collateral damage on Asia’s main markets.

The index of blue-chips gained 30 points to 7,082.36 with eyes turning to Europe Tuesday as Downing Street stated the Brexit process is entering its “end-game”.

Added spice will be provided by the Italian government, which is on collision course with the EU over its budget.

Heading the Footsie was Vodafone (LON:VOD) after the mobile phone giant refined its financial guidance for the year and said it was generating slightly more cash than had been forecast.

Crucially for income seekers, the dividend will remain intact at the interim full-year stage. The shares rose 7%.

“The positive initial reaction to the numbers calms some of the turbulence and underpins a resolutely optimistic view on the company’s prospects, where the general market view of the shares as a buy remains intact,” said Richard Hunter, stocks guru at Interactive Investor.

Leading the losers’ list was Taylor Wimpey (LON:TW.), the first of the builders to update on trading this week.  

Its shares fell 2.8% after it warned political and economic risks (presumably Brexit) may have an impact on buyer confidence.

Just over a month after its stock market listing, a flurry of research has been released on Aston Martin Lagonda (LON:AML), led by Goldman Sach, one of the banks that helped organise the float.

It rates the luxury car firm as a ‘buy’ up to £20.20, which was top of the price target range, which bottomed out at £16.10.

The shares, 1.9% at £16.24, are currently trading around 15% below the listing price of £19.

Proactive news headlines:

Haydale Graphene Industries PLC  (LON:HAYD) is to work with Star RFID in Thailand to develop graphene and silver-based-inks for the printed Radio Frequency Identification market. The co-development is expected to lead to a supply and collaboration agreement in the coming months.

Tissue Regenix Group PLC’s (LON:TRX) sUBSidiary, CellRight Technologies, has expanded its relationship with orthopaedic solutions company Arthrex Inc with a new pan-European distribution agreement.

The Aoka Mizu floating production storage and offloading vessel, which is on its way to Hurricane Energy PLC’s (LON:HUR) Lancaster field development, off the west coast of the Shetland Islands, has put into Algeciras, Spain for planned personnel changes and bunkering.

Communications and information technology services provider AdEPT Technology Group PLC (LON:ADT) is trading in line with expectations, with the board “delighted” by progress.

Kodal Minerals PLC (LON:KOD) has hit mineralisation in diamond drilling at the Sogola-Baole and Boumou prospects in southern Mali.

Mosman Oil And Gas Limited (LON:MSMN) said a test recently performed on the producing Stanley-1 well in the US clearly shows potential for higher flow rates once current gas constraints are removed.

Oriole Resources PLC (LON:ORR) has made sUBStantial progress in its appeal against an HMRC decision to make it pay VAT on overseas activity that involved the support of exploration. A £557,000 provision made in the 2017 accounts is now likely to be released.

A well site survey at Dunquin South in the Irish Atlantic Margin has been approved by the licence consortium, said Providence Resources PLC (LON:PVR). Dunquin South lies within the Porcupine Basin on licence FEL3/04 and the survey is a pre-requisite for a first exploration well, added Providence.

The UK regulator has completed its review of the Environmental Statement submitted in regard to the proposal to drill the Colter appraisal well and has agreed in principle to grant consent to drill. United Oil & Gas PLC (LON:UOG) holds a 10% interest in the well, which is operated by Corallian Energy.

Sareum Holdings PLC (LON:SAR), the specialist small molecule drug development company, announced the appointments of Michael Owen and Clive Birch as non-executive directors. Owen is the co-founder and first CSO of biopharmaceutical firm Kymab Ltd, prior to which he worked for GlaxoSmithKline PLC (LON:GSK) where he was SVP and Head of Research for Biopharmaceuticals R&D. Birch is an Independent non-executive director of Cambridge Innovation Capital PLC, a Cambridge-based builder of technology and healthcare companies.

ECR Minerals PLC (LON:ECR), the precious metals exploration and development company, has published a new corporate presentation, and In addition, reflecting interest in the Sierra de las Minas gold project in La Rioja, Argentina, the group has also prepared a project-specific presentation in both English and Chinese which may be viewed on its website.

6.45am: FTSE 100 called higher 

The FTSE 100 is expected to open a touch higher on Tuesday morning, however concerns around the Italian budget and Brexit, coupled with a recent fall in tech stocks, are likely to weigh on market sentiment.

Spread-betting firm IG is expecting the index to open around 10 points higher after slumping 52 points yesterday to close at 7,053.

Despite having opened higher, the markets went into reverse after a number of US tech companies and chip suppliers warned on their future earnings due to weaker mobile phone demand going into the Christmas season.

One of the big losers was Apple Inc (NASDAQ:AAPL), which slumped around 5% to close at US$194.

Michael Hewson, chief market analyst at CMC Markets UK, says that given the decision by Apple to stop reporting unit sales of its iPhones, iPads and other individual products, as well as a slight miss on handset sales, “should have clued investors in” to the bleak outlook, therefore it was surprising that investors “took so long to put two and two together”.

The fall back was reflected across US markets yesterday, with the Dow Jones Industrial Average closing down 602 points at 25,387, while the S&P 500 closed down 54 points at 2,726 and the Nasdaq closed down 206 points at 7,200.

The wave of losses continued into the Asian markets today with the Japanese Nikkei 225 slumping 459 points to 21,810 while Hong Kong’s Hang Seng was stagnant around 25,633.

In political news, the high likelihood that the Italian government will send its budget back to the European Commission with little change is likely to cause some perturbation in bond markets as the Italians dare the Commission to levy fines against it.

Hewson says the bond markets “appear to be underestimating the likelihood of a conflagration here, with 10-year Italian yields below their October peaks”.

He added: “We have started to see some weakness in the euro which hit its lowest levels this year yesterday falling below 1.1300 for the first time since June last year”.

On the currency markets, the pound underwent a bit of a see-saw session yesterday amid conflicting accounts on a Brexit deal, which saw sterling slump to a one-week low before a more optimistic tone from EU chief negotiator Michel Barnier saw it rebound to trade around 0.26% higher against the dollar at US$1.288.

The UK better than expected third quarter GDP growth last week of 0.6%, likely to be reflected in today’s wage growth data, could also lift sterling as the rate is expected to be maintained around the 3.1% figure reported in August.

Housebuilders lead busy diary on Tuesday

Low interest rates and government schemes such as Help to Buy, Buy-to-Let and the Lifetime ISA have been a huge boon for housebuilders in recent years.

The measures should continue to help the likes of Taylor Wimpey PLC (LON:TW.), although they won’t last forever.

Chancellor Philip Hammond said in last week’s Budget that Help to Buy will end in 2023, so investors will want to see both companies building some strong foundations while the sun is shining.

Taylor Wimpey, which will update the market on Tuesday, has previously said costs would rise by no more than 3-4% over the year. Given that higher labour spending earlier this year contributed to a 1.8% decline in operating profits, it’s an important target to hit.

The Beast from the East earlier in the year held back TW’s completions in the first half. It wasn’t a terrible effort by any means, but investors will want to see numbers rebound in the second half.

Significant announcements expected on Tuesday November 13:

Interims: Vodafone PLC (LON:VOD), Land Securities PLC (LON:LAND), DCC PLC (LON:DCC), Experian PLC (LON:EXPN), FirstGroup PLC (LON:FGP), Premier Foods PLC (LON:PFD), BTG PLC (LON:BTG), Carclo PLC (LON:CAR), Codemasters Group Holdings PLC (LON:CDM), AdEPT Technology Group PLC (LON:ADT), Oxford Instruments PLC (LON:OXIG), Castings PLC (LON:CGS), Schroder Real Estate Investment Trust PLC (LON:SREI)

Finals: McCarthy & Stone PLC (LON:MCS), Orchard Funding Group PLC (LON:ORCH)

Trading updates: Taylor Wimpey PLC (LON:TW.), Aggreko PLC (LON:AGK), TT Electronics PLC (LON:TTG), Vitec PLC (LON:VTC), Charter Court Financial Services Group PLC (LON:CCFS), JPJ Group PLC (Q3) (LON:JPJ)

Economic data: UK unemployment, average earnings; US NFIB business optimism index

Around the markets:

• Sterling: US$1.288, up 0.26%
• Brent Crude: US$69.42, down 1%
• Gold: US$1,204.46 an ounce, up 0.32%
• Bitcoin: US$6,312, down 0.78%

City headlines:

• Financial Times: Both sterling and the euro tumbled on Monday, stung by the unravelling of UK Prime Minister Theresa May’s Brexit plans, showing a disorderly exit would be a drag on both the eurozone and the UK.
• The Daily Telegraph: Shire and Takeda hope to finalise one of the biggest pharmaceutical mergers in history by 8 January.
• The Times: The Dow Jones Industrial Average plunged more than 600 points yesterday as Amazon, Apple and other technology companies led a sell-off on Wall Street.

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