London midday: FTSE turns higher as pound drops ahead of May's cabinet meeting
By Michele Maatouk
Date: Wednesday 14 Nov 2018
(Sharecast News) - London stocks had turned a touch higher by midday on Wednesday, boosted by a weaker pound as investors waited to see whether Theresa May can secure Cabinet backing for the draft Brexit deal she has agreed with the EU.
The FTSE 100 was up 0.1% to 7,059.40, reversing earlier losses as sterling lost ground, trading down 0.6% against the dollar at 1.2904 and 0.3% versus the euro at 1.1457. A softer pound tends to benefit the top-flight index as around 70% of its constituents derive most of their earnings from overseas.
According to data from Refinitiv, sterling-dollar 'implied volatility', measuring the protection bought by investors against sharp swings in the currency, has jumped to its highest since the general election in June last year and is on course for its biggest weekly rise in at least five years.
The PM has called a meeting of senior ministers at Downing Street at 1400 GMT to approve the draft agreement, which is understood to include a solution to a hard border in Ireland by introducing a UK-wide customs backstop plan which would keep Britain in a customs union with the EU until a more permanent solution is agreed.
"What appears to be a major breakthrough in Brexit negotiations could well prove to be a false dawn as PM May's draft Brexit treaty has been met with widespread criticism," said David Cheetham, chief market analyst at XTB.
"Sceptics fear that rather than providing a temporary solution it could well be seen as a minimum basis going forward. Given that it is unlikely a 'better' deal would be reached after first agreeing to this it is true that it may well end up becoming the default position."
The pound could continue to be constrained by uncertainty, said currency analyst Kit Juckes at Societe Generale. Even if May gets cabinet sign-off trying to garner support for her deal in the House of Commons will be very tough.
"The opening salvos from the DUP, hard Brexiteers in the Conservative ranks, and the leadership of the Labour party, suggest this will be very hard indeed. Therefore, even if white smoke comes out of the top of the Downing Street chimney this afternoon and agreement is announced, any further GBP rally is likely to be short-lived as we return to a familiar state of uncertainty," Juckes said.
Jacob Rees-Mogg, chairman of the pro-Brexit European Research Group, told BBC Newsnight that he was so unhappy with the agreement he might withdraw his backing for May. Meanwhile, Nigel Dodds, Westminster leader of the Democratic Unionist Party - which props up May's government - expressed concerns that the deal would leave Northern Ireland subject to rules and regulations set in Brussels with no democratic input from Belfast.
With Brexit the star of the show, inflation data came and went with little fuss. The consumer price index in October remained 2.4% higher year-on-year, as it was the month before, according to the Office for National Statistics. The Bank of England and the wider market had been expecting a rise to 2.5%.
On a monthly basis, CPI was up 0.1% for the second month in a row, though had been expected to climb 0.2%.
Recent increases in utility prices provided support for inflation, but this was offset by a steeper fall in food prices than had been expected.
On the corporate front, Micro Focus was the standout gainer on the back of an upgrade to 'buy' at Goldman Sachs, where analysts said the risk/reward is now skewed to the upside. Following a period of significant M&A execution risks after the HPE Software deal, which led to turbulent sales growth, the "dust is starting to settle" at Micro Focus.
Retailer Next was also a high riser after an upgrade to 'buy' at HSBC.
Global technology company Smiths Group rallied after saying it expected to meet full year expectations and announcing plans to separate Smiths Medical from the group and concentrate on growing as an industrial technology group.
Energy firm SSE advanced despite posting a 41% drop in interim profit and expressing doubts over the completion of its merger with Npower, as it announced the creation of a renewable energy business.
On the downside, miners were a drag, with Antofagasta, Rio, BHP Billiton and Anglo American all weaker as copper prices fell following disappointing Chinese loan growth and retail sales data.
Market Movers
FTSE 100 (UKX) 7,059.40 0.08%
FTSE 250 (MCX) 19,008.18 0.12%
techMARK (TASX) 3,407.73 0.54%
FTSE 100 - Risers
Micro Focus International (MCRO) 1,419.00p 8.57%
Smiths Group (SMIN) 1,395.50p 6.12%
ITV (ITV) 157.80p 4.82%
GVC Holdings (GVC) 805.50p 3.60%
SSE (SSE) 1,169.50p 3.36%
British Land Company (BLND) 640.40p 3.29%
Reckitt Benckiser Group (RB.) 6,429.00p 3.09%
Kingfisher (KGF) 252.90p 2.97%
Paddy Power Betfair (PPB) 6,860.00p 2.85%
Land Securities Group (LAND) 889.20p 2.85%
FTSE 100 - Fallers
Antofagasta (ANTO) 742.00p -3.71%
Rio Tinto (RIO) 3,703.50p -3.71%
Evraz (EVR) 519.00p -3.46%
BHP Billiton (BLT) 1,539.80p -2.69%
Experian (EXPN) 1,828.50p -2.40%
Ashtead Group (AHT) 1,898.50p -2.37%
Wood Group (John) (WG.) 636.60p -2.09%
Ferguson (FERG) 5,085.00p -1.97%
DCC (DCC) 6,150.00p -1.84%
Glencore (GLEN) 289.65p -1.73%
FTSE 250 - Risers
BCA Marketplace (BCA) 213.00p 6.61%
Convatec Group (CTEC) 169.50p 6.57%
Polymetal International (POLY) 735.00p 4.14%
Cranswick (CWK) 2,948.00p 3.66%
Sophos Group (SOPH) 328.20p 3.40%
888 Holdings (888) 175.90p 3.11%
Spectris (SXS) 2,081.00p 2.77%
Pennon Group (PNN) 778.40p 2.72%
RPC Group (RPC) 833.50p 2.62%
Inchcape (INCH) 577.00p 2.49%
FTSE 250 - Fallers
Hunting (HTG) 627.00p -5.22%
Kaz Minerals (KAZ) 489.40p -3.96%
Aggreko (AGK) 819.20p -3.85%
Petrofac Ltd. (PFC) 532.10p -3.78%
Tullow Oil (TLW) 189.05p -3.05%
Premier Oil (PMO) 92.25p -3.05%
Grainger (GRI) 282.60p -2.89%
Grafton Group Units (GFTU) 768.00p -2.78%
Renishaw (RSW) 3,820.00p -2.60%
UK Commercial Property Reit Limited (UKCM) 84.57p -2.57%
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