- FTSE 100 closes 2.25% higher
- US markets up
- Sterling gives back most of the morning's gains against the US dollar
5.25pm: FTSE firmly ahead
FTSE 100 index joined global markets to head higher on Monday, with financial stocks standout gainers, as traders bask in the "China story as well as the Boris Johnson effect".
Britain's blue chip index finished up over 165 points higher, or 2.25%, at 7,519. The mid-cap FTSE 250 also surged, gaining almost 413 points to close at 21,910.
It comes after a large Conservative win in last week's UK general election was seen to ease uncertainty over Brexit
Meanwhile, according to Washington, China has agreed to buy up to US$200bn in additional goods and services from the USA over the next two years on top of the amount it purchased in 2017, In exchange, the US will reduce some US tariffs on Chinese goods.
On Wall Street, the Dow Jones Industrial Average gained over 175 points at 28,312, while the S&P 500 added nearly 28 points to stand at 3,196.
The pound was near flat agaisnt the US dollar, at 1.3327.
"The FTSE 100 is outperforming as the market is benefiting from the China story as well as the Boris Johnson effect," said David Madden, market analyst at CMC Markets.
"The US-China trade deal story from last week is still doing the rounds, and the well-received Chinese industrial production plus retail sales reports are adding to the bullish sentiment too. The news relating to China has boosted mining and oil stocks, while the Boris bounce is assisting banks, house builders in addition to retailers."
2.40pm: Dow Jones opens higher
The Dow Jones has opened on the front foot but the more widely-traded S&P 500 is being a bit more coy.
The Dow was up 131 points (0.5%) at 28,267 and the S&P less than a quarter of a point better at 3,169.
On the foreign exchange markets, the pound has relinquished most of its gains against the greenback thus providing extra incentive for the bulls to chase the FTSE 100 193 points higher (2.6%) to 7,547.
After a slow start, the FTSE 250 is catching up with the FTSE 100, showing a 397 point (1.8%) increase at 21,905, despite pubs group tumbling 4.9% to 443p after HSBC downgraded the pubs group to ‘hold’ from ‘buy’.
In other broker action, publishing group Pearson PLC (LON:PSON) was one of the few blue-chips in the red, as Berenberg cut its price target to 525p from 620p; the shares currently trade at 654.8p, down 0.8%.
1.20pm: FTSE 100 back on the rise as traders eye firm start on Wall Street
Ahead of what is expected to be a firm start on Wall Street, UK blue chips have resumed their upward trajectory.
After a mid-morning pause for breath, the FTSE 100 was up 162 points (2.2%) at 7,515.
“UK markets are surging higher once again today, with positive sentiment over an impending US-China trade deal continued to help drive stocks higher,” observed Joshua Mahony at IG Group.
“Robert Lighthizer claims that the deal is ‘totally done’, with the deal expected to see US exports to China double over the next two years. The big test for this deal will be exactly what impact this has upon earnings and the wider growth picture, with the US markets expected to outperform in anticipation of improved metrics. With the US-China deal forecast to mainly benefit US companies, there is plenty of reason to expect outperformance for US stock markets if and when that impact is quantified,” he added.
IG Group is expecting the Dow Jones to open 77 points higher at 28,212.
11.20am: Sterling's strength slows the Footsie's progress
The FTSE 100 has come off the top as sterling flexes its muscles on foreign exchange markets.
With the pound up more than a third of a cent at US$1.3364 against the US dollar, enthusiasm to chase UK blue-chips higher waned in the second half of the morning trading session.
The FTSE 100 was hovering around the 7.500 level, up 148 points (2.0%) on the day.
Disappointing PMI data for the UK did not have much of an effect on sentiment. Many traders took the view that pre-election and pre-Brexit uncertainties had led to overly cautious decisions by purchasing managers but things should pick-up now the brakes are off following last Thursday’s General Election result.
“The decline in the composite PMI to a 41-month low in December shows that businesses were on tenterhooks ahead of the election, with uncertainty about its outcome and Brexit dampening activity,” said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.
“On past form, the composite PMI is consistent with a 0.2% quarter-on-quarter decline in GDP in Q4. The PMIs, however, have tended to overplay the impact of political uncertainty on GDP growth; they have under-predicted the rate of quarter-on-quarter growth by 0.2pp [percentage points] on average over the last four quarters. Note too that the surveys were conducted between December 5 and 12, so they do not tell us anything about the response of business confidence to the election result,” Tombs added.
10.10am: Dismal PMI data fails to slow the Footsie's climb
The IHS Markit / CIPS Flash UK Composite Purchasing Managers’ Index revealed a second successive monthly decline in private sector output in December.
The index was down to 48.5 from November’s 48.5. A value below 50 indicates a contraction in output.
December data pointed to lower volumes of service sector output and a much sharper drop in manufacturing production, with the latter falling to the greatest extent for almost seven-and-a-half years, IHS reported.
“December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months,” commented Chris Williamson, the chief business economist at IHS Markit.
“The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election,” he added,
"New orders fell for a fifth straight month, causing jobs to be cut for a fourth successive month as firms scaled back operating capacity in line with weakened demand.
"The principal drag on order books was falling export sales, with overseas demand for UK-produced goods and services slumping in the past two months to an extent not seen since at least 2014.
"Manufacturing production is falling at a rate exceeded only once since the height of the global financial crisis in early2009, but output of the vast service sector has now also fallen in each of the past two months, representing the first back-to-back declines since 2009,” Williamson reported.
Duncan Brock, the group director at the Chartered Institute of Procurement & Supply )CHP) said the continuing Brexit-related aversion to investment and a pre-election lack of consumer confidence led to the fastest fall in business activity in December since July 2016.
"European orders continued to dry up along with new jobs as the addition of a slowing global economy made trading conditions all the more challenging for both sectors.
"However the biggest shock came in the form of the worst output performance from the manufacturing sector since July 2012. A lack of new orders and the unravelling of pre-Brexit inventories hampered progress and supply chain managers’ purchasing dropped at the fastest pace since 2009 in the absence of a pipeline of work ready and waiting. Service companies had challenges of their own in the form of another modest rise in costs for food and fuel,” Brock said.
Private sector activity falls again, led by fastest drop in manufacturing output since July 2012— Trudy Salandiak (@Troody) December 16, 2019
IHS Markit / CIPS Flash UK Composite PMI®
- Flash UK Composite Output Index Dec: 48.5, 41-month low (Nov final: 49.3)
- Flash UK Services Business Activity…https://t.co/xm8kI89hLy
The dismal data did not stop the FTSE 100 from adding to earlier gains; the index had been loitering around the 7,491 level before the PMI release but kicked on to hit an intra-day peak of 7,531 - up 178 points - at around 10.00am.
9.50am: FTSE 100 piles up the gains as traders welcome trade deal developments
“The Only Way Is Up” as Otis Clay sang in 1980 and that remains the theme tune for UK equities after last week’s election result.
Today it is the turn of the FTSE 100 to outstrip the mid-cap FTSE 250, with the former up 88 points (1.2%) at 7,442 and the latter up 52 points (0.2%) at 21,560, largely because of the greater impact the putative trade deal between the US and China will have on blue-chip stocks compared to the mid-caps.
“We are sceptical about the alleged trade agreement with China. We suspect that the pact will have vague elements that could leave the US and China with different interpretations of their obligations under the agreement,” said Daiwa Capital Markets.
“We anticipate charges and counter-charges of violations to the agreement in the year ahead. Such disagreements will limit progress on phase-two of negotiations, which would have been difficult in any event. Phase-one involved the easy elements of trade negotiations, and progress here was slow and difficult,” it added.
To put it another way and to borrow Ebenezer Scrooge’s favourite phrase to sum up Daiwa's view: humbug!
Fags maker British American Tobacco PLC (LON:BATS), up 3.6% at 3,148.5p, led the advance, closely followed by fashion firm Burberry PLC (LON:BRBY), which does a lot of business in China; the latter was up 3.1% at 2,186p.
Tullow Oil plc (LON:TLW) is once again a drag on the FTSE 250 after last week’s share price crash, profit warning and board room defenestration. The shares were off 10% at 60.96p, having enjoyed a strong rally on the final four days of last week after plunging 72% a week ago.
“Making another large acquisition at a time when markets are already worried about debt levels is an extremely brave move by Cineworld,” declared AJ Bell’s Russ Mould.
“The deal does look attractive in that it strengthens the group’s position in North America and the valuation multiples for the acquisition price aren’t excessive; however, buying Cineplex will raise even greater concerns that Cineworld is trying to do too much at once,” Mould cautioned.
The shares were up 18% at 423.8p after the company maintained that the surprise €674mln Belgian tax bill revealed at the time of July's full-year results “will not lead to material liabilities”.
8.35am: Post-election bounce is boosted by trade deal developments
The FTSE 100 got off to a stronger than anticipated start, buoyed by the tentatively positive conclusion to the first round of China-America trade talks.
The market was also given a second-day lift by the Conservative Party election victory, which it is hoped will provide economic momentum as well as a resolution to the thorny issue of Brexit.
“Election hangover? Far from it. The FTSE 100 is stronger again as investors continue to cheer the Tory election win, and of course the US-China trade deal,” said Neil Wilson on Markets.com.
“A tilt at the November highs around 7,450 could well be on today.”
Financial services sector stocks continued their move higher, led by a reinvigorated Royal Bank of Scotland (LON:RBS), which advanced to the top of the risers’ list with a 3% gain. Wall Street broker Morgan Stanley’s upgrade to ‘overweight’ will have helped.
After Friday’s spectacular advances, the housebuilders succumbed to some early, minor profit-taking.
Among the mid-caps Sports Direct’s (LON:SPD) interims more than cheered investors, with the stock market 11% higher early on.
Proactive news headlines
Touchstone Exploration Inc (LON:TXP, TSE:TXP) has announced a significant crude oil discovery on the Ortoire exploration block, onshore Trinidad. The Cascadura-1ST1 well encountered what is described as significant prospective oil pay, totalling 1,037 feet gross.
Shanta Gold Ltd (LON:SHG) has revealed results from its latest round of exploration drilling at the producing New Luika Gold Mine in South Western Tanzania. A total of 66 reverse circulation and diamond core holes were drilled, amounting to over 7,410 metres, at a cost of approximately US$700,000.
Kavango Resources PLC (LON:KAV) has completed the first phase of drilling on the Kalahari Suture Zone project. During this phase three of the 15 targets identified as having potential to host massive sulphide ore bodies were tested.
Scotgold Resources Ltd (LON:SGZ) has extended the construction period at the Cononish gold mine in Scotland by 12 weeks. First gold production is now expected in May 2020.
Oracle Power PLC (LON:OCP) has entered into a joint development agreement with the private office of Sheikh Ahmed Dalmook Juma Al Maktoum and China National Coal Development Company (China Coal) for its thermal power station project at Thar in Pakistan.
Galantas Gold Corporation (LON:GAL) has arranged a £1mln convertible debenture with its largest shareholder.
Scancell Holdings PLC (LON:SCLP) has signed a second collaboration and non-exclusive research agreement, with a Chinese biotechnology company to assess monoclonal antibodies (mAbs) targeting tumour-associated glycans (TaGs) that have been enhanced with the AIM-listed company's AvidiMab technology.
Zoetic International PLC said it has received full payment of the debt owed to it by Diversion Technologies. Diversion paid Zoetic $44,854 and Zoetic has also completed the purchase of 950,000 ordinary shares from Diversion. "The combination of these two transactions fully settles the debt owed by Diversion, including taking account of further expenditure incurred by the company during the current financial year," the company said.
Anglo African Oil & Gas PLC (LON:AAOG) has announced that James Berwick has resigned from his position as chief executive to become the full-time chief executive of Anglo Tunisian Oil & Gas, where he is a significant shareholder.
Midatech (LON:MTPH, NASDAQ:MTP) has received notification from NASDAQ stating that the company has 180 calendar days to regain compliance of the minimum bid price requirement for continued listing on the market.
Quadrise Fuels International plc (LON:WFI) announced that non-executive director Hemant Thanawala will resign as a director of the company with effect from the end of the month due to other business commitments.
6.34am: Front foot start predicted
The FTSE 100 looks set to launch into the new trading month in positive territory thanks mainly to Friday’s announcement of a phase-one trade deal between the US and China.
Analysts are split as to whether the accord, which has staved off another round of American tariffs, is the beginning of the end of hostilities or just the end of the beginning (to paraphrase Churchill).
“The US president is likely to keep chipping away at China in relation to trade, as the Trump administration have been a long-standing critic of China’s intellectual property rights,” said David Madden, analyst at CMC Markets.
“So, the argument will be probably rebooted on the run-up to the presidential election campaign.
“The trade fight was never just about things like soybeans and pork, Washington DC is very unhappy with China’s IP policy, but Beijing can play the long game, so that will be a tougher nut to crack.”
Asia’s main markets were mixed overnight
Mainland China stocks were buoyed by a double dose of a decent economic news in the form of monthly data on industrial output and retail sales.
Japan and Hong Kong’s main indices were off marginally, while in Korea the Kospi was flat.
Closer to home, the next few days should see newly elected Prime Minister Boris Johnson unveil a modestly rejigged cabinet ahead of Wednesday’s Queen’s Speech.
Later this week the Bank of England will make its monthly call on interest rates – and is expected to stand pat – while the results of clearing bank stress tests will be published.
Around the markets: Pound worth US$1.3387; gold worth US$1,480.50 an ounce, down 70 cents; Brent crude changing hands for US$65.04 a barrel, down 18 cents
- Johnson plans to pour billions into Midlands and North
- New Bank of England governor to be picked in days
- Sales bounce in UK high-end property after Tory win
- Tory election victory to boost house prices
- British Steel rescue not set to collapse, insists Chinese buyer
- Aramco nears $2tn
- General election result could see pound rally to pre-referendum level of $1.45
- Does the new Rolls-Royce all-electric aircraft herald a step change in aviation?
- Water companies brace for toughest crackdown in history
Monday’s main market news
AGMs: Arc Minerals Limited (LON:ARCM)
Economic data: UK flash manufacturing PMI, UK flash services PMI