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FTSE 100 closes higher on trade deal news and UK election result

Britain's blue chip benchmark closed up nearly 80 points at 7,353, seemingly unfazed by the 1.31% rise in the pound against the dollar

Donald Trump
  • FTSE 100 index closes 80 points up
  • US stocks mixed
  • FTSE 250 surges

5.10pm: FTSE closes up

FTSE 100 romped home to close firmly higher on Friday, as traders cheered reports of a new trade deal between the US and China and following a landslide victory by the Conservatives in the UK general election on Thursday.

Britain's blue chip benchmark closed up nearly 80 points at 7,353, seemingly unfazed by the 1.31% rise in the pound, against the US dollar.

The FTSE 250 got a big shot in the arm too, and earlier hit a new high, as it was boosted by the prospect of a business-friendly Tory government. The mid-cap index closed up a whopping 714 points at 21,507.

"The phase one US-China trade deal focuses on increased Chinese purchases on agricultural products, in exchange for a lessening of the current tariffs in place," noted Joshua Mahony, senior market analyst at online trader IG.

"The sceptics will note that China has hugely cut down on their purchases of US agricultural goods, and thus the devil will be in the detail to note whether this is really the boon Trump insists it is. However, for markets this breakthrough is hugely notable as it eases the shackles placed upon a country which remains one of the biggest drivers of economic growth," he added.

Meanwhile, on London's top share index - the Footsie, house builders zoomed up  as the apparent fog of Brexit uncertainty was lifted.

Top gainer was Taylor Wimpey (LON:TW.), which notched up an impressive 14.6 point gain to 199.65p.

On Wall Street, the Dow Jones Industrial Average shed around nine points at  28,122, while the S&P 500 added around one point.

3.35pm: High hopes for US trade deal

Optimism returned to stocks across the globe late Friday, as traders took cheer from a market-friendly UK election result, and reports of a phase 1 trade deal agreement between the US and China.

London’s blue-chip index was back on the rise, up 117 points to 7,390, albeit off the morning peak of 7429.04.

This was mostly thanks to a ‘Boris boost’, and sterling coming down off highs of US$1.35 this morning, to a more modest lift to US$1.3329.

Meanwhile across the Atlantic, the Dow Jones Industrial Average recovered from a weak start to hit a new all-time high of 28,250 points, before backing off to be 84 points higher  at 28,217.

Connor Campbell, a financial analyst at Spreadex said: “Donald Trump himself couldn’t hurt sentiment this Friday, the markets ignoring his Twittervention to keep climbing higher.

The President tweeted on Friday that the Wall Street Journal report, which stated that the US and China had reached a trade deal and that tariffs would be rolled back, was ‘completely wrong’, and called it ‘fake news’.

Campbell said that “Friday’s real change” was on the FTSE 100, initially held back by a strong sterling, but then shot up with the “banking and housebuilding sectors seeing some red-hot growth”.

“All this index growth, however – be it in the US, Eurozone or UK – will quickly come unstuck if Trump is telling the truth. A lack of trade deal or tariff delay would see another $156 billion in Chinese goods smacked with extra charges this Sunday, setting back talks between the superpowers and ending the year on a dour, pessimistic note,” he added.

2.50pm: Wall Street makes a slow start

The FTSE 100 index drew back a little from day highs, but retained an elevated position around 7,379, 106.5 points higher than the open.

The gains were led by utilities stocks, airlines, and housebuilders, which were sent soaring after news of a strong Conservative majority in the UK general election allayed political uncertainties.

The dip from highs came as Wall Street made a slow start, with the Dow Jones Industrial Average 25.6 points lower to 28,106 at the open.

Uncertainty has ratcheted up over recent trade negotiations with China, ahead of tariffs on imports which are due to begin on 15 December.

Reports on Thursday suggested that the US has reached a phase one trade deal with China in principle, pending President Trump’s approval, with the US offering to scrap the duties on tech, clothes, and toys, which were to begin on Sunday, and also halve some existing tariffs.

US stocks rose strongly on Thursday on the reports, but traders are holding back Friday as they await confirmation from China.

“Although it is being reported that the agreement has been reached about the content of the deal, the legal text is still to be drafted which could create problems,” said Timme Spakman, an economist at ING. “The phase one deal does not include the most sensitive topics, so considerable hurdles remain for a full deal that resolves the trade war.”

“Sensitive issues such as indirect Chinese state subsidies and the US wish that China lets go of the ambition to dominate tech markets have been left for a phase two deal,” he noted. “Negotiating a phase two deal that is acceptable for both sides on these issues is very hard because both parties are poles apart on these issues. Moreover, Chinese officials emphasised that US actions have 'severely damaged the hard-earned basis for mutual trust'."

“The current deal would come a bit earlier than some expected but is not surprising as the announced Christmas tariff pack is unpopular and President Trump is looking to claim that he is a dealmaker as the 2020 elections approach,“ he concluded

2.15pm: Soft retail across the pond

US retail sales rose 0.2% in November, below the consensus forecast for 0.5%, with sales ex-autos and the control measure both up 0.1%, also below consensus for 0.4%. and 0.3% respectively.

Ian Shepherdson, chief economist at Pantheon Macroeconomics commented: “The spike in sales captured by the Redbook survey in the week of Thanksgiving pointed to better numbers, but the earlier part of the month might have suffered from the after-effects of strong tariff front-running spending in August and September.

“November sales were soft almost across the board, with electronics (up 0.7%, reversing their Oct drop) and nonstore (up 0.8%, below trend) the key exceptions. The fourth quarter as a whole could yet be rescued by a strong December, though, and/or the November data could be revised up substantially. The sales numbers are volatile, and forecasting holiday season sales with confidence has been made very difficult by the structural shift in the timing of peak spending, towards Thanksgiving weekend and Cyber Monday; the latter this year fell in December.”

He added: “Right now, though, even a hefty 1% jump in control sales in December would complete a mere 2.3% annualized increase in Q4, down from 6.0% in Q3 and 7.9% in Q2. Those numbers could never be sustained, but they made it easy to believe the story of the invincible consumer. That narrative now looks harder to sustain, and if capex and exports are anything like as weak as surveys suggest, the softening in consumption will make it hard for Q4 GDP growth to breach 2%."

12.00pm: Inflation expectations mixed

Aside from the election result euphoria, there was mixed news on inflation expectations on Friday for the Bank of England Monetary Policy Committee to digest ahead of next week’s last meeting of 2019.

The public’s inflation expectations for the year ahead dipped to 3.1% from 3.3%, according to the quarterly Bank of England/TNS survey carried out in November.

Inflation expectations on a two-year horizon also edged down to 2.9% from 3.0%. However, inflation expectations on a five-year horizon rose back up to 3.6% after dipping to 3.1% in the August survey from 3.8% in the May survey.

Howard Archer, chief economic advisor to the EY ITEM Club, commented: “Mixed news for the Monetary Policy Committee (MPC) as the Bank of England/TNS quarterly survey for November shows the public’s inflation expectations for one-year and two-year ahead dipping but the five-year inflation expectations moving sharply back up after a substantial dip in the August survey.”

He added: “For now, we just about maintain the view that the Bank of England is most likely to keep interest rates at 0.75% through 2020. However, it is a close call and there is clearly a very real possibility that there could be a 25 basis point interest rate cut to 0.50% in 2020. 

“If the UK economy fails to show clear signs of picking up in the early months of 2020, pressure will clearly mount on the Bank of England to trim interest rates to provide support.”

Sterling off highs, FTSE 100 back closer to peak

On currency markets, sterling remained off its overnight peaks hit after the Conservative party’s clear majority in the UK general election which should hopefully slay the Brexit spectre.

But the pound still held only just below US$1.34 and €1.20 levels breached earlier.

With equities, the FTSE 100 index was back closer to the day’s peak of 7,417.07, adding nearly 135 points at 7,408.05, helped by expectations for further gains on Wall Street.

After a big jump on Thursday, US stocks look to start higher as well today thanks to the brighter Brexit picture and hopes for a Sino/US trade deal – although China has so far failed to confirm President Trump’s optimism which provided the boost yesterday.

Most of the excitement in London, however, was provided by the domestically-focused FTSE 250 index which surged 4%, or nearly 850 points higher to 21,639 on relief at the removal of political uncertainty in the UK.

10.55am: Sterling's strength dampens early euphoria

After a euphoric start, UK blue-chips have moved into consolidation mode, despite sterling coming off the top on foreign exchange markets.

The FTSE 100 was up 120 points (1.7%) at 7,394 while sterling was trading at around US$1.3385 against the dollar, up 2.21 cents.

“A strong pound decreases the value of the overseas profits generated by the multinationals of the FTSE 100 once they are translated back into sterling but a rising British currency could be well received by three stock market sectors in particular,” teased AJ Bell’s Russ Mould before revealing the sectors.

“They are General Retailers, Food Retailers and Travel and Leisure – and this helps to explain why International Consolidated Airlines, Next, TUI, Dixons Carphone and AB Foods are all prominent risers in early trade.

“This is because a strong pound may cap imported raw material costs for them and also tamp down inflation more generally, putting more money in consumers’ pockets on a real-term, post-inflation basis.

“In addition, a perky pound means it is cheaper to travel abroad than would have otherwise been the case, something which could benefit tour operators and travel agents,” he added.

Given the threat of renationalisation has diminished after yesterday’s General Election result, Barclays Capital has chosen a good day to upgrade utility companies Severn Trent PLC (LON:SVT) and United Utilities Group PLC (LON:UU.); both have been moved to ‘overweight’ from ‘equal-weight’.

The former is up 7.7% at 2,393p and the latter is 8.4% higher at 919.4p.

Retail investors’ favourite Lloyds Banking Group PLC (LON:LLOY) was 5.7% firmer at 3,455p after Mediobanca Securities upgraded the mortgage lender to ‘outperform’ from ‘neutral’.

10.00am: You can bet your house on a Footsie surge

While it has been put in the shade by the FTSE 250, the rise by the FTSE 100 is none too shabby.

The index of London’s heavy hitters was up 124 points (1.7%) to 7,397, with just 16 of the index’s constituents in the red.

Included among the laggards are oil giants BP PLC (LON:BP.) and Royal Dutch Shell (LON:RDSB) – down 0.1% and 0.6% respectively – and drugs giants Hikma Pharmaceuticals PLC (LON:HIK) and GlaxoSmithKline PLC (LON:GSK), which are down 2.5% and 1.7% respectively.

As on the FTSE 250, housebuilders are seen as the big beneficiaries of last night’s convincing win for the Conservative Party in the General Election.

Expectations that Brexit uncertainty will now disappear and thus revitalise the UK’s moribund housing market has seen Taylor Wimpey PLC (LON:TW.), Berkeley Group Holdings PLC (LON:BKG), Barratt Developments PLC (LON:BDEV) and Persimmon PLC (LON:PSN) all rack up gains of more than 10%.

“A Conservative win was always likely to be the most market-friendly outcome,” said Sheldon MacDonald, the deputy chief investment officer at Architas.

“We anticipate this will provide positive sentiment for UK equities, but it will also be positive for sterling, which might undermine the sentiment boost, given FTSE heavyweights earn a significant portion of their revenues overseas. This encouraging outcome for equities is likely to be accompanied by stronger growth and inflation expectations, which could lift interest rates. This scenario is worse for UK bonds as a result. Corporate bonds may outperform government bonds, as they are less sensitive to interest rate movements, but this is all relative. They might still underperform cash,” MacDonald added.

 

8.40am: City in bullish mood

The FTSE 100 index celebrated a thumping election win for Boris Johnson and the prospect of a US-China trade deal also lit the touchpaper under blue-chip stocks Friday – although investors had to wait a bit as London’s price setters made sense of the mood.

After 45 minutes of trading, the UK benchmark was up around 107 points at 7,380.

The Tory Party's victory in the polls lifted the grey pall over the Square Mile created by Brexit uncertainty, while the promised cessation of Sino-American trade hostilities only added to the pre-Christmas merriment.

Registering rises of 15% and 12% respectively were British Airways owner IAG (LON:IAG) and builder Persimmon (LON:PSN), while the financial stocks led by Legal & General (LON:LGEN) and state-owned Royal Bank of Scotland (LON:RBS) were also in demand.

However, a  sharp rise in the pound following the exit poll last weighed on the UK’s foreign currency earners. So, topping the losers’ list were stocks such as druggies GlaxoSmithKline (LON:GSK) and AstraZeneca (LON:AZN) as well as international drinks firm Diageo (LON:DGE) and household goods giant Unilever (LON:ULVR).

“We are expecting pro-cyclical and more domestic shares to dominate the gains on the FTSE 100 today,” said Jasper Lawler of London Capital Group.

“That will include the likes of banks and homebuilders. As a better reflection of the domestic UK economy, which stands to benefit from greater clarity on Brexit and the economy, the FTSE 250 index looks on course for a record high.”

Indeed, the mid-cap index shot up a whopping 825 points to 21,618.07.

Proactive news headlines:

Hurricane Energy PLC (LON:HUR) expects it will have brought in some US$165mln of revenue by the end of 2019, thanks to the continuing successes of the Lancaster field early production system (EPS). It comes as the Lancaster EPS is seen performing strongly which, for investors, is in contrast to the disappointing end to the 2019 drill campaign at Hurricane’s 50% owned Greater Warwick Area.

Anglesey Mining PLC (LON:AYM) said in its half-year results statement it remains encouraged by the continued support for iron ore prices. The period under review – the six months to the end of September – saw consultant QME carry out an agreed programme of design, engineering and optimisation studies relating to the future development of the Parys Mountain zinc, copper lead project, located on the island of Anglesey in Wales.

Ferro-Alloy Resources Limited (LON:FAR) has expanded its existing vanadium concentrate processing operations as it continues financing discussions to develop its Balasausqandiq project in Kazakhstan. The company said its production in October had also reached a record of 18.2 tonnes of concentrate and it is expecting a “significant increase in monthly production” from mid-December as the new equipment becomes fully operational.

ImmuPharma PLC (LON:IMM) announced that its shares will be dual-listed on Euronext Growth Brussels with effect from 19 December 2019, following approval by the European exchange, a move which will bring the company “additional visibility among European investors”. The AIM-listed specialist drug discovery and development company said the new listing – under the ticker ALIMM - does not affect the trading of its shares on AIM in London, nor is there any intention for it to raise additional funds from either AIM or Euronext.

Custodian REIT (LON:CREI), the UK property investment company, has announced the appointment of Hazel Adam as a non-executive director with effect from 12 December 2019. The company noted that Mrs Adam was an investment analyst with Scottish Life until 1996 and then joined Standard Life Investments as a fund manager specialising in UK and then Emerging Market equities; in 2005 she joined Goldman Sachs International as an executive director on the new markets equity sales desk before moving to HSBC in 2012, holding a similar equity sales role until 2016.

7.00am: FTSE 100 called higher 

It was the result the City wanted – a Conservative government with a majority verdict – and the FTSE 100 is set to open higher accordingly.

The fact that the rise is only expected to be around 27 points at 7,300 can be ascribed to the reaction of foreign exchange traders to the result, who bid up sterling to around US$1.3476, more than three cents higher against the dollar.

With so many Footsie constituents working for the Yankee dollar that sort of currency appreciation will hit the profits of many of them.

With 6 seats yet to declare, the Conservatives have 361 seats - a gain of 66 seats - and Labour 202 - which lost 42 seats.

The Scottish Nationalist Party, with 48 seats, had a good night although not as good as the exit polls suggested, raising the prospect of increased pressure on the UK government to sanction another referendum on Scottish independence.

The Liberal Democrats had a bad evening, with just 11 seats; party leader Jo Swinson was among those who lost her seat.

US markets yesterday had a very strong day with the Dow Jones Industrials Average jumping 221 points to close at 28,132 while the S&P 500 advanced 27 points to finish on 3,169, as hopes rose that the US and China have agreed not to introduce new trade tariffs this weekend.

Asian markets picked up the baton with Japan’s Nikkei 225 up 611 points at 24,036 this morning and Hong Kong’s Hang Seng index 589 points to the good at 27,586.

Back in the UK, the focus should only be on the General Election post-mortem, which is probably just as well as there is little in the way of company news.

Full-year results from Hollywood Bowl Group PLC (LON:BOWL) will offer sub-editors a few opportunities for skittles based puns.

On the macroeconomic front, there is the US retail sales release and the possibility of more pronouncements on the progress of US-Sino trade talks.

Around the markets:

  • Sterling: US$1.3476, up 3.12 cents
  • 10-year gilt: 0.822%, up 4.64 basis points
  • Gold: US$1,471.90 an ounce, down 40 cents
  • Brent crude: US$64.63 a barrel, up 43 cents
  • Bitcoin: US$7,224, up US$12

City headlines:

Financial Times

New ECB chief Christine Lagarde has committed to maintain her predecessor Mario Draghi’s ultra-loose policy.

Investors have withdrawn close to £200 million from UK property funds. It’s the worst week of redemptions since the 2016 Brexit vote and comes after the suspension of an M&G portfolio.

The stock market valation of Saudi Aramco has risen above US$2,000bn after the shares climbed 10% on their second day of trading.

Wizz Air plans to tap into markets in the Middle East, Africa and the Indian subcontinent by setting up an airline in Abu Dhabi next year.

The Times

Exit poll last night suggested a comfortable working majority victory for Boris Johnson after voters backed him to take Britain out of the EU next month.

The US is set to slash tariffs on Chinese imports and cancel a new round of levies after reaching “a deal in principle” to resolve the 17-month trade war with Beijing.

Balfour Beatty raised annual profit and cash forecasts yesterday after offloading overseas infrastructure assets.

Dixons Carphone yesterday reported a 10% fall in like-for-like mobile phone sales for the half-year to 26 October, but insisted its recovery is on track.

Costain, the contractor behind several large infrastructure projects across Britain, has issued its second profit warning in six months.

City watchdog is investigating M&C Saatchi over the accounting crisis that has reduced the advertising agency’s share price by 70% and precipitated a board revolt.

The Daily Telegraph

Efforts by the Opec cartel of oil-producers and their allies to curb output could fail to have an impact, the International Energy Agency said.

Car sales in China are forecast to shrink for a third year running, raising fears of “peak car” in an alarming development for motor manufacturers.

Autonomy founder Mike Lynch was accused of lying to the High Court on Thursday in a $5 billion civil fraud trial over its ill-fated sale to HP.

Daily Mail

Serco is poised to pay its first dividend since 2014 after the outsourcer's UK operations returned to growth.

PZ Cussons is to part with its long-serving chief executive, Alex Kanellis, after warning that profit and revenue fell in the first half of the financial year.

The Guardian

SFM UK Management, the London arm of the New York-based Soros Fund Management, this week made a £16 million bet against shares in the owner of the Daily Mail newspaper.

Fashion chain Superdry fell into the red, confessed to a near-£4 million accounting error and warned of a difficult Christmas for retailers.

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