London close: Stocks slip amid conflciting news around Brexit
By Alexander Bueso
Date: Monday 12 Nov 2018
(Sharecast News) - London stocks fell into the red 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 even as the US Greenback continued to power higher.
The FTSE 100 was down by 0.74% or 52.26 points to 7,053.08 even as sterling slumped 0.83% against the dollar to 1.28623, although versus the euro it was down by only 0.15% to 1.1428, amid reports of growing opposition to Theresa May's Brexit deal.
Losses on the second-tier index were even larger, with the FTSE 250 shedding 1.54% or 295.03 points to 18,811.58.
In parallel, the US dollar index was climbing 0.55% to 97.4370, having hit a fresh 52-week high at 97.5780 earlier during the same session.
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.
Against that backdrop, just before the end of the trading, the Financial Times reported that the European Union's chief trade negotiator, Michel Barnier, had told ministers from the EU's remaining member states that the main points of a Brexit deal were ready to present to the UK cabinet on Tuesday.
However, EU officials later dialled down talk of a breakthrough, saying "intense negotiating efforts continue, but an agreement has not been reached yet".
Commenting on Monday's turn of events, analysts at Capital Economics said: "While we expect the currency to remain under pressure in the near term, we still think it is more likely than not that sterling will rally next year.
"In what has become a common theme in the past few months, the latest pull back in sterling appears to reflect fading optimism of a Brexit breakthrough. Theresa May reportedly cancelled plans for an emergency Cabinet meeting to approve a deal on Monday amid continued disagreement from MPs on the Irish backstop. There are further reports that a number of ministers are prepared to join Jo Johnson in resigning."
Tobacco stocks were the biggest drag, with British American Tobacco leading way with a whopping 10.62% 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 2.18% 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, energy shares and those of miners did best as oil prices broke their losing streak and copper prices traded higher throughout most of the session, with, BHP, Rio Tinto, 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 at the weekend it would cut production by 500,000 barrels a day starting from next month.
Saudi energy minister, Khalid Al-Falih, followed up on Monday, saying a combined output cut of 1.0m barrels a day by producing nations may be needed.
His remarks stoked a bounce in crude futures, but by the close of markets in London, front month Brent crude oil futures had roughly halved their gains to stand just 1.294% higher at $71.10 a barrel on the ICE as gains in the US dollar weighed on prices.
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 finished higher, albeit off its best levels, 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) 7,053.08 -0.74%
FTSE 250 (MCX) 18,811.58 -1.54%
techMARK (TASX) 3,333.75 -0.21%
FTSE 100 - Risers
Informa (INF) 734.60p 3.12%
Shire Plc (SHP) 4,702.50p 1.95%
AstraZeneca (AZN) 6,251.00p 1.28%
Bunzl (BNZL) 2,262.00p 1.03%
BHP Billiton (BLT) 1,601.20p 0.98%
Rio Tinto (RIO) 3,885.00p 0.92%
Compass Group (CPG) 1,551.50p 0.91%
Centrica (CNA) 155.60p 0.84%
BP (BP.) 528.10p 0.80%
Rolls-Royce Holdings (RR.) 820.80p 0.74%
FTSE 100 - Fallers
British American Tobacco (BATS) 2,962.50p -10.62%
Ocado Group (OCDO) 798.40p -6.36%
GVC Holdings (GVC) 788.00p -5.97%
Just Eat (JE.) 573.40p -5.63%
Kingfisher (KGF) 241.30p -5.41%
Fresnillo (FRES) 823.80p -4.32%
Barratt Developments (BDEV) 525.40p -3.57%
Barclays (BARC) 170.74p -3.43%
Lloyds Banking Group (LLOY) 57.92p -3.39%
Melrose Industries (MRO) 165.55p -3.37%
FTSE 250 - Risers
Hunting (HTG) 657.00p 2.98%
Babcock International Group (BAB) 616.20p 2.63%
Meggitt (MGGT) 517.60p 2.05%
Playtech (PTEC) 468.00p 1.54%
Woodford Patient Capital Trust (WPCT) 85.50p 1.41%
Beazley (BEZ) 538.50p 1.22%
Premier Oil (PMO) 100.00p 0.96%
Wizz Air Holdings (WIZZ) 2,978.00p 0.85%
Euromoney Institutional Investor (ERM) 1,248.00p 0.81%
Inmarsat (ISAT) 425.00p 0.71%
FTSE 250 - Fallers
Sports Direct International (SPD) 286.90p -11.59%
Contour Global (GLO) 150.10p -10.17%
Vivo Energy (VVO) 96.00p -7.69%
AA (AA.) 93.48p -6.75%
Fisher (James) & Sons (FSJ) 1,640.00p -6.55%
Domino's Pizza Group (DOM) 277.60p -6.50%
Stobart Group Ltd. (STOB) 192.20p -6.40%
Inchcape (INCH) 549.00p -6.15%
Ted Baker (TED) 1,779.00p -6.15%
Bank of Georgia Group (BGEO) 1,576.20p -6.03%
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