London midday: Stocks turn lower as tobacco sector splutters
By Michele Maatouk
Date: Monday 12 Nov 2018
(Sharecast News) - London stocks had fallen into the red by midday on Monday as a weak performance from the tobacco sector offset gains for miners and oil companies, with the pound under the cosh amid growing worries about Brexit.
The FTSE 100 was down 0.1% to 7,098.191% even as sterling slumped 0.8% against the dollar to 1.2874 and 0.1% versus the euro to 1.1429 amid reports of growing opposition to Theresa May's Brexit deal.
Ahead of a key cabinet meeting on Tuesday, with British and EU negotiators also reported to be close to agreeing a draft withdrawal agreement for the same day, May's plans were "under siege from across the Tory party", according to the Guardian newspaper, while the Times eyed potential further cabinet resignations as there remains two major issues on which the party cannot agree: fishing rights and a review mechanism for leaving the Irish backstop arrangement.
IG market analyst Joshua Mahony said: "Brexit worries have ramped up after a weekend that saw a resignation from Jo Johnson, alongside a warning from Labour that a no-deal Brexit would be blocked by Parliament. The difficulty for sterling traders is that for every rumour of an impending breakthrough in negotiations, there are opposing reports of an inability to even decide what type of Brexit the conservatives want to push through."
Tobacco stocks were the biggest drag, with British American Tobacco leading way with a whopping 9.5% fall following reports that the US Food and Drug Administration is looking to ban menthol cigarettes as well as clamping down on ecigarettes, while Imperial Brands was 3.7% weaker. BAT derives around 20% to 25% of group profits from US menthol.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Along with cigarette volumes shrinking, regulation is the other inevitable fact of the tobacco industry.
"The acquisition of Reynolds gave BATS a dominant position in US menthol. That's a segment that's been in regulators' sights for some time - thanks to its perceived status as a gateway for new smokers. The FDA are now said to be considering banning them altogether. While many menthol smokers would likely move over to non-menthol products, it would still be a major blow.
"An ever more hostile regulatory environment might explain why BATS has decided to spend big on next-generation products like e-vapour and heated tobacco. These products are believed to cause less harm to users, but even here the regulator is creating waves - potentially banning flavoured capsules popular with younger customers."
Elsewhere, Diageo ticked lower after announcing the sale of 19 brands, including Seagrams, to US firm Sazerac for $550m (£427m).
On the upside, miners and energy shares were the standout gainers as copper and oil prices rose, with Rio, BHP Billiton, Anglo American, BP and Shell all in the top 10 FTSE 100 risers. On the 250, Hunting, Premier, Tullow and Cairn Energy also gained as Brent crude and West Texas Intermediate rallied after Saudi Arabia said it would cut production by 500,000 barrels a day next month.
Neil Wilson, chief market analyst at Markets.com, said: "In the short term this is a positive for oil, but we must question the impact longer term unless it's the sign of more to come from OPEC. Saudi Arabia cannot act alone though - realistically it needs to pull together OPEC allies and, critically, Russia to curb production if it wants prices to hold. The language from Russia suggests it is not ready to follow the Saudis yet."
Wood Group pushed higher after saying it had been awarded three new call-off contracts totalling $53m by the Abu Dhabi National Oil Company.
Rio Tinto rallied as it successfully completed an AUD$2.87bn off-market buyback and Shire advanced as Japan's Takeda Pharmaceutical said it will seek investor backing for its acquisition next month and aims to close the deal on 8 January.
Defence contractor Babcock International rose as it responded to an attack from a mystery research firm, insisting that its relationship with the Ministry of Defence was "as strong as ever".
AstraZeneca was on the front foot after saying that its diabetes drug Farxiga had "significantly" reduced the risk of hospitalisation for heart failure in a clinical trial.
In broker note action, Sports Direct slumped after an initiation at 'sell' by Berenberg, while JD Sports was started at 'buy' by the same outfit. Hikma was weaker after a downgrade to 'hold' from 'add' at Peel Hunt.
Market Movers
FTSE 100 (UKX) 7,098.19 -0.10%
FTSE 250 (MCX) 18,936.26 -0.89%
techMARK (TASX) 3,344.22 0.10%
FTSE 100 - Risers
Rio Tinto (RIO) 3,970.00p 3.44%
BHP Billiton (BLT) 1,630.00p 3.03%
Wood Group (John) (WG.) 681.28p 2.56%
Rolls-Royce Holdings (RR.) 832.20p 2.19%
Shire Plc (SHP) 4,709.50p 2.07%
BP (BP.) 532.90p 2.02%
Anglo American (AAL) 1,718.40p 2.00%
Informa (INF) 724.60p 1.97%
Royal Dutch Shell 'B' (RDSB) 2,501.00p 1.75%
Burberry Group (BRBY) 1,798.00p 1.72%
FTSE 100 - Fallers
British American Tobacco (BATS) 3,000.50p -9.47%
Imperial Brands (IMB) 2,639.50p -3.71%
Kingfisher (KGF) 246.10p -3.37%
easyJet (EZJ) 1,218.50p -2.55%
Ocado Group (OCDO) 830.80p -2.51%
Just Eat (JE.) 591.80p -2.47%
Smurfit Kappa Group (SKG) 2,280.00p -2.46%
Persimmon (PSN) 2,329.00p -2.39%
Barclays (BARC) 172.02p -2.34%
Royal Bank of Scotland Group (RBS) 245.80p -2.30%
FTSE 250 - Risers
Hunting (HTG) 669.50p 4.94%
Premier Oil (PMO) 103.30p 4.29%
Ferrexpo (FXPO) 218.10p 3.59%
Tullow Oil (TLW) 209.40p 2.95%
Babcock International Group (BAB) 614.20p 2.80%
Sophos Group (SOPH) 348.40p 2.15%
Weir Group (WEIR) 1,578.00p 1.97%
Playtech (PTEC) 467.90p 1.84%
Elementis (ELM) 205.60p 1.78%
Avast (AVST) 294.25p 1.78%
FTSE 250 - Fallers
Sports Direct International (SPD) 301.90p -6.53%
Amigo Holdings (AMGO) 242.90p -5.46%
Contour Global (GLO) 158.80p -4.97%
TI Fluid Systems (TIFS) 190.50p -4.58%
IP Group (IPO) 108.00p -4.42%
Bank of Georgia Group (BGEO) 1,600.00p -4.40%
Ted Baker (TED) 1,818.03p -4.31%
BCA Marketplace (BCA) 206.50p -4.23%
Renishaw (RSW) 3,848.00p -4.04%
Inchcape (INCH) 560.00p -4.02%
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