London close: Stocks track bounce on Wall Street
By Alexander Bueso
Date: Wednesday 21 Nov 2018
(Sharecast News) - London stocks finished higher on Wednesday, helped along by well-received results from Johnson Matthey as Theresa May headed to Brussels for crunch talks on her Brexit deal.
The FTSE 100 was up 1.47% or 102.31 points to 7,050.23, led by miners, oil producers and banks. The pound was 0.1% weaker against the dollar at 1.27711 and 0.27% lower versus the euro at 1.1216.
Also helping investor sentiment was a bounce on Wall Street following the heavy selling sustained during the previous session, when the Dow slumped more than 550 points and the Nasdaq lost just under 120 points, adding to Monday's heavy losses.
Commenting on the price action in markets, IG's Chris Beauchamp told clients: "Investors have witnessed a common sight for markets, the pre-Thanksgiving bounce in equities, a feature as traditional as the roast turkey. With a holiday looming, American investors are in optimistic form, and markets are sufficiently oversold to be primed for a bounce.
"How far it goes is another matter, but signs of a possible end to the selling are beginning to pile up, and US indices have now completed another part of the 'W' formation that usually accompanies such a big sell-off - i.e. a slump, a short-lived bounce, then another drop, before a more sustainable rally. It would not pay to be too excitable, since without the US tomorrow volumes will be light and moves unlikely to last, but some will now be asking the question, 'is the bottom in?'"
May was due to meet Jean-Claude Juncker later in the day to try to finalise a Brexit deal ahead of Sunday's summit of European leaders, with access to the single market, fisheries and the issue of Gibraltar still stumbling blocks.
"If the deal is signed off by the EU on November 25, GBP is likely to find some additional support," said Jane Foley, a currency strategist at Rabobank. "However, the pound would still be faced with the very significant risk of the UK parliament not voting through the Brexit deal. Since this would lead to a huge increase in political uncertainty, the pound would be very vulnerable to a significant downward correction at this point."
Currently the market's central scenario seems to be that May will be successful in pushing her deal though parliament, Foley observed. "If that consensus starts to shift towards a 'no deal' scenario over the next couple of weeks, investors are likely to lengthen their short GBP positions which could push EUR/GBP towards 0.90 and potentially above."
Investors were keeping an eye on Italy after the EU rejected its budget proposal - as widely expected - over concerns about its level of debt and said it will sanction the country with a fine. The European Commission said in a statement: "With regret, that today we confirm our assessment that Italy's draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July."
Deputy prime minister Matteo Salvini was reported to have said earlier that the 2.4% deficit target was non-negotiable but other aspects of the proposal were up for discussion.
Closer to home, data released earlier by the Office for National Statistics showed the UK budget deficit was much bigger than expected last month. The deficit rose to £8.82bn in October from £7.235bn the year before, marking the largest October shortfall in three years. It was also larger than analysts' expectations of £6.1bn.
"Hefty public borrowing in October has brought the run of good news on the public finances to an abrupt end, though it's too soon to conclude that the Chancellor is set to miss the forecasts laid out in last month's Budget," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
In corporate news, Johnson Matthey surged after reporting a rise in first-half profit and saying full-year operating performance would be towards the upper end of its guidance.
NMC Health was also on the rise after an upgrade to 'overweight' from 'neutral' by JPMorgan, British Land was boosted by an upgrade to 'buy' at HSBC and Wizz Air flew higher after an upgrade to 'buy' from UBS.
Paragon Banking Group was on the up as it said full-year profits rose thanks to its diversification efforts.
Sage Group reversed a steep drop after the accounting software developer said its profit margin will drop in the coming year as it ups investment. On the bright side, the company said a strong fourth quarter enabled it to deliver its tough targets for growing annual sales and profits.
On the downside, home improvement retailer Kingfisher was the worst performer on the FTSE 100 as it said third quarter total sales rose 1.2% to £3.04bn in constant currency, but like-for-like sales were down 1.3% reflecting continued weak sales in its French Castorama business. It said highlighted a "more uncertain" outlook for Castorama.
Indivior suffered more heavy losses a day after a US appeals court judge lifted restrictions on a copycat version of its biggest-selling drug, as it said it was likely to lose up to 80% of its market share for the anti-opioid addiction treatment. As a result of the decision, the shares were downgraded to 'sector perform' at RBC Capital Markets.
The company, whose shares crashed 47% on Tuesday, said it would oppose the lifting of the injunction that had been preventing generic drugmaker Dr Reddy's Laboratories from selling its generic version of Indivior's Suboxone Film.
Babcock was in the red after the defence contractor reported a 64% slump in half-year pre-tax profit as it incurred exceptional charges of £120m. Underlying results were in line with expectations.
Food outlet operator SSP was under the cosh as it posted a jump in full-year profits but said Kate Swann will be stepping down from her role as chief executive officer after more than five years at the company.
Market Movers
FTSE 100 (UKX) 7,050.23 1.47%
FTSE 250 (MCX) 18,584.94 1.19%
techMARK (TASX) 3,428.60 0.51%
FTSE 100 - Risers
Johnson Matthey (JMAT) 3,170.00p 14.15%
NMC Health (NMC) 3,678.00p 7.92%
Melrose Industries (MRO) 177.10p 5.89%
Smurfit Kappa Group (SKG) 2,278.00p 4.88%
Just Eat (JE.) 574.60p 4.40%
Scottish Mortgage Inv Trust (SMT) 477.60p 4.20%
GVC Holdings (GVC) 775.50p 3.88%
Antofagasta (ANTO) 826.00p 3.87%
Rolls-Royce Holdings (RR.) 814.40p 3.75%
Randgold Resources Ltd. (RRS) 6,606.00p 3.45%
FTSE 100 - Fallers
Kingfisher (KGF) 238.80p -3.05%
Shire Plc (SHP) 4,584.00p -0.99%
Intertek Group (ITRK) 4,556.00p -0.89%
Ferguson (FERG) 4,749.00p -0.81%
AstraZeneca (AZN) 6,200.00p -0.78%
GlaxoSmithKline (GSK) 1,576.20p -0.38%
Fresnillo (FRES) 912.60p -0.18%
British American Tobacco (BATS) 2,722.50p -0.15%
Legal & General Group (LGEN) 240.20p -0.12%
Halma (HLMA) 1,350.00p 0.00%
FTSE 250 - Risers
Paragon Banking Group (PAG) 445.20p 8.22%
Wizz Air Holdings (WIZZ) 2,969.00p 6.15%
Sophos Group (SOPH) 339.00p 5.87%
EI Group (EIG) 186.00p 5.08%
Contour Global (GLO) 169.60p 5.02%
Cairn Energy (CNE) 180.40p 4.82%
Morgan Advanced Materials (MGAM) 274.60p 4.81%
FirstGroup (FGP) 86.15p 4.61%
Intu Properties (INTU) 195.45p 4.55%
Close Brothers Group (CBG) 1,499.00p 4.46%
FTSE 250 - Fallers
Indivior (INDV) 97.86p -11.00%
SSP Group (SSPG) 627.50p -8.37%
Babcock International Group (BAB) 567.00p -4.58%
Computacenter (CCC) 1,038.00p -2.99%
Electrocomponents (ECM) 550.60p -2.89%
Kier Group (KIE) 792.00p -2.70%
Diploma (DPLM) 1,308.00p -2.53%
Aveva Group (AVV) 2,472.00p -1.98%
RHI Magnesita N.V. (DI) (RHIM) 3,466.00p -1.87%
FDM Group (Holdings) (FDM) 860.00p -1.71%
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