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Market ReportFTSE 100

FTSE 100 closes higher, bolstered by sterling's fall; rate rise doubts

The index of leading UK shares closed up just shy of 50 points higher at 7,676, while the FTSE 250 was also up

Sterling
What will the BoE do with rates next month?
  • FTSE 100 closes nearly 50pts up

  • Sterling battered by inflation data

  • Miners shine

  • August rate rise less likely?

FTSE 100 closed higher on Wednesday, bolstered by a weaker pound and mining stocks.

The index of leading UK shares closed up just shy of 50 points higher at 7,676, while the FTSE 250 was also up.

The mid-cap index closed out 112 points higher at 20,984, while FTSE smallcap added 6.52 at 5,915.

The pound shed 0.32% against the Euro at 1.1210, while it lost 0.31% against the US dollar at 1.3070. Earlier UK inflation data came in lower than expected.

Fiona Cincotta, analyst at City Index,  said: "The FTSE rose for a second consecutive session on Wednesday helped higher by BHP Billiton and Easyjet on the back of strong corporate updates; and supported by a slump in the pound as doubts emerge over an August interest rate rise."

She added: "From whichever angle you look at this the data so far this week has not been supportive of an interest rate rise. Instead we are in danger of seeing a repeat of May, where weak data leading up to the MPC meeting prevented the widely expected rate hike."

Top riser on Footsie was Hargreaves Lansdown (LON:HL), up 3.18% to 2,110p. Next highest was steel maker Evraz (LON:EVR), which pumped up 2.99% to 538.20p.

The biggest loser was Smiths Group (LON:SMIN), which lost 7% to 1,627p.

3.30pm: Wall Street mixed

A mixed start on Wall Street led to the Footsie losing a bit of impetus.

The FTSE 100 was up 35 at 7,661 after the Dow opened higher and the S&P and Nasdaq Composite lower on the other side of the pond.

“European markets are once more taking their lead from the devaluation of their currencies, with stocks gaining ground amid a resurgent dollar,” observed Joshua Mahony at IG Group.

“An underwhelming UK inflation release this morning has furthered the questions over whether a rate rise next month is as likely as markets expect. With growing Brexit uncertainty, a slowing wage growth, and a falling rate of core inflation, the idea of a rate rise is no doubt becoming less attractive by the day. With August rate hike expectations currently in decline, the current weakness we are seeing in sterling comes as no surprise,” he added.

“Market uncertainty over the outcome of the Brexit process is gathering steam, with Brexiteers such as Jacob Rees-Mogg set to fight for a harder Brexit all the way. The difficulty Theresa May is faced with is the fact that her decision to call an early election has weakened her hand so significantly that she is forced to not only appease the needs of the EU, but also pander to a host of differing factions within her own party,” he added.

Mpac Group PLC (LON:MPAC) shares lost a third of their value on the back of a half-year trading update.

The packaging group issued a profit warning saying that full-year profits are expected to be around £1.2mln below current market expectations.

The company said the underwhelming performance was partly due to a softening in the market and partly down to significant, technically challenging legacy projects that will now not be completed until the end of the 2018 financial year.

2.00pm: Footsie's advance running out of steam

With US markets set to open a tad lower, the FTSE 100 was having a hard time extending gains in lunchtime trading.

The FTSE 100 was up 49 at 7,676, four points below its intra-day high.

In the US, spread betting quotes suggested the S&P 500 would open around a point down from last night’s close of 2,809.6.

“Focus is back on the central banks on Wednesday as we await the second appearance this week of Federal Reserve Chair Jerome Powell and the Bank of England’s interest rate plans are questioned following some softer inflation numbers,” commented Craig Erlam at Oanda.

Some pundits have suggested that this morning’s inflation data has raised doubts over whether the Bank of England would go ahead with the widely-expected interest rate hike next month, but Erlam reckons an August rate hike is still 72% priced in, down from 77% yesterday.

One-fifth of the top-share index’s constituents are in the red, including Severn Trent PLC (LON:SVT), which released a trading update ahead of its annual general meeting today.

The waste and water company’s shares ebbed to 1,874p from 1,897.5p overnight after it released an “as you were” statement.

Fellow utility stocks Centrica PLC (LON:CNA), National Grid PLC (LON:NG.), Scottish & Southern Energy PLC (LON:SSE) and United Utilities PLC (LON:UU.) – none of which are likely to benefit from sterling’s current weakness – also suffered small losses.

The share price of SRT Marine Systems PLC (LON:SRT) was under water after the maritime safety systems provider said it was informed by its south-east Asian government customer of a decision to change the funding source and therefore the contract structure for the fisheries monitoring project announced in March 2018.

The decision will hit SRT’s profits and revenues for the year to March 2018.

11.00am: Sterling's weakness makes the Footsie's many big dollar earners more attractive

The FTSE 100 received a leg-up this morning from inflation data that sent sterling reeling.

The pound fell 7/8 of a cent against the US dollar, which is good news for the Footsie, which has a large number of big dollar earners among its membership.

The FTSE 100 was up 49 points at 7,675.

The inflation rate for June had been expected to rise to around 2.6% but instead held steady at 2.4%, reducing the chances of an interest rate rise next month and thus sapping demand for sterling on the foreign exchange markets.

"That was a big miss for the sterling bulls and MPC hawks and ought to put to bed any thoughts of raising rates in August,” declared Neil Wilson at Markets.com.

“Whether or not they do is another matter; the Bank of England's policymakers seem to be guiding a hike and the market has quietly acquiesced but data this week does not support the case for an imminent raising of rates. My bet is the Bank will - as in May - be forced by softer data to be forced away from raising rates too quickly,” Wilson revealed.

While the blue-chip index sailed higher, not all big caps were in favour; technology outfit Smiths Group PLC (LON:SMIN) was the biggest faller, tumbling 8.2% to 1,605.5p, after its pre-close trading update contained some bad news on its medical division.

“The group, with the exception of Smiths Medical, is expected to deliver a full year performance in line with expectations,” the statement said.

The stumble at Smiths Medical was attributed to the temporary suspension of some of its products being eligible for sale in Europe after one of its service providers was decertified for certain products ahead of the EU Medical Device Regulation to be introduced in 2020.

Russ Mould, the investment director of AJ Bell, opined that the group often seems not to derive any benefit from being a diversified operation, “with market attention drawn to struggling operations, overshadowing progress elsewhere”.

“The rest of its operations, which include oil services and detection technology, are doing well. Today’s news may only add to calls for a break-up of the group and the company is continuing discussions about a potential combination of its medical arm with ICU Medical,” Mould said.


 

9.45am: Inflation surprise sends sterling sliding

The FTSE 100 index enjoyed a mini-surge following the release of inflation data at 9.30am.

The top-shares index, which had been bobbing around the 7,670 level prior to the release of consumer prices index data, advanced to 7,668, up 42 points on the day.

The consumer prices index 12-month inflation rate was 2.4% in June 2018, unchanged from May 2018. Economists had expected the inflation rate to rise to 2.6%; the fact it did not may persuade the Bank of England to hold off from hiking interest rates next month.

“The reading itself remains notably above the 2% inflation mandate for the BoE but it does appear to be heading back towards target after peaking at 3.1% last November. Today’s release was the fourth time in the last five releases that this metric has come in lower than expected and Governor Carney may now have a greater belief that inflation can return to target without the need for any additional tightening,” suggested David Cheetham at forex trading platform operator xtb.

Tom Stevenson, the investment director for personal investing at Fidelity International, said the reading was a huge surprise.

“It had been expected to bounce back up to 2.6% or even 2.7% on the back of higher fuel and energy prices. While these came through, they were offset by falling prices for clothes and games,” Stevenson said.

“Faster rising prices would have given the Bank of England cover for an interest rate hike next month. Now it looks odds-on that the MPC will hold fire yet again. That’s particularly the case after yesterday’s wage growth data emerged weaker than expected at 2.5% including bonuses,” he added.

With the smart money now on the Bank of England keeping interest rates unchanged next month, sterling took a hit, which is good news for the large number of Footsie stocks that earn the bulk of their revenues overseas, such as tool hire outfit Ashtead Group PLC (LON:AHT), up 1.6%, and hotels giant Intercontinental Hotels Group PLC (LON:IHT), up 2.0%.

 

8.45am: Quietly firmer ahead of inflation data

The Brexit situation has not become less chaotic but traders have taken heart from yesterday’s advance on Wall Street and chased prices higher.

The FTSE 100 was up 26 at 7,626.

US indices advanced yesterday after a fairly upbeat assessment of the US economy by Jerome Powell, chairman of the US central bank.

“Yesterday’s testimony from Jay Powell offered little in the way of surprises but the Fed Chair’s insertion of the words ‘for now’ when restating the FOMC’s intention to ‘keep gradually raising the federal funds rate’, as well as his recognition that ‘it is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy’ underscored that the central bank will be flexible in its monetary policy as the outlook unfolds,” suggested Daiwa Capital Markets.

Back in the UK, low-cost airline easyJet PLC (LON:EZJ) was wanted after lifting profit guidance.

The budget airline now expects headline pre-tax profit – including the operations at Berlin Tegel Airport that it agreed to buy from insolvent Air Berlin last October— for the 2018 financial year of £550mln to £590mln, up from the £530mln to the £580mln range it estimated in its first-half results in May.

“The stars are aligning for easyJet this year, as a number of factors are playing into its hands,” said Richard Hunter, the head of markets at Interactive Investor.

“The demise of competitors such as Monarch, Air Berlin and Alitalia has opened up the field, ancillary revenue has increased due to a change in passenger behaviour (increasingly paying for additional baggage and allocated seating) and load factors remain high,” he added.

The shares were up 0.9%.

The trading update from GVC Holdings PLC (LON:GVC) was even more warmly received, with the shares rising 1.2% as the bets-taker revealed it had a good World Cup.

READ Ladbrokes and Coral owner GVC boosted by World Cup betting splurge

Among the minnows, yesterday’s star performer Mosman Oil And Gas PLC (LON:MSMN) was at it again today, rising 14% to 0.83p, after announcing its participation in the Stanley Development Drilling Project, located onshore Texas, USA.

 

Proactive news headlines:

Rockfire Resources Plc (LON:ROCK), has revealed that a third gold target has been identified at its Marengo exploration project in Queensland, Australia. The AIM-listed group – formerly known as Papua Mining - said the third target, "Mt Marengo", looks to be similar to One Mile Mountain already identified at Marengo.

Life sciences group SkinBioTherapeutics PLC (LON:SBTX) remains on track to kick off the human study of its SkinBiotix technology in September after receiving provisional ethics approval from regulators.

88 Energy Ltd (LON:88E), in a statement, said that recent well results “support the potential economic viability of the HRZ shale play”. The junior oil and gas firm’s quarterly activities report comes after the suspension of the Icewine-2 well programme.

Bloomsbury Publishing PLC (LON:BMY) has traded in line with expectations in the first four months of its financial year, with both divisions growing revenues.

Mining group Metal Tiger PLC (LON:MTR) has sold its 30% stake in the T3 copper prospect in Botswana to partner MOD Resources. Metal Tiger will receive A$8.3mln (£4.6mln) in shares based on a price of A$0.48 per share for Aussie-listed MOD.

Background checks specialist ClearStar Inc (LON:CLSU) expects to report its highest ever half-year revenues for the first six months of this year.

Haydale Graphene Industries PLC (LON:HAYD) has noted the launch of a new graphene characterisation service at the University of Manchester.

NetScientific PLC (LON:NSCI) has announced that its portfolio company Wanda Technology Enhancements has completed a significant enhancement of its Patient Management Platform to improve patient adherence to care plans.

Shanta Gold Limited (LON:SHG) has hit reported grades from an exploration programme outside of the current reserves area at the New Luika gold mine in Tanzania. Four diamond holes were drilled at the Bauhinia Creek East underground mine, where there has already been historical bonanza grade intercepts.

Wolf Minerals Limited (LON:WLFE ASX:WLF) has reported improvements in its operating strength at its Drakelands mine in Devon following the March cold snap as it sought new funds from investors. In a production update for the three months ended 30 June 2018, the AIM-listed miner said tungsten and tin production were up 41% and 67% respectively over the last 12 months.

SDX Energy Inc (LON:SDX, CVE:SDX) told investors that it is due to sign a three-year, US$10mln credit facility with the European Bank for Reconstruction and Development (EBRD) with the funds earmarked for its assets in Morocco. It will be an initial US$10mln facility, though it will have an ‘accordion’ feature allowing for up to US$20mln of total funds availability.

Immunotherapy specialist Scancell Holdings Plc(LON:SCLP) has exercised an option to in-licence delivery technology for its lead drug candidate. It has inked a deal with Ichor Medical Systems, which has developed the TriGrid 2.0 electroporation system.

Event-driven marketing specialist Mporium Group PC (LON:MPM) has signed a major new client to its IMPACT platform. The name of the customer wasn’t revealed. However, chief executive Nelius De Groot described the new partner as one of the world’s “largest and most prestigious media services networks”.

Avation PLC (LON:AVAP), the commercial passenger aircraft leasing company, announced that Iain Cawte has taken the position of chief financial officer of the company with effect from 17 July 2018. Prior to this appointment, Cawte was Avation's Director of Treasury, Compliance and Risk. The firm also said, correcting an earlier error, that it intends to release its unaudited results for the financial year ending 30 June 2018 on 6 September 2018.

Real Good Food PLC (LON:RGD) has confirmed details of an open offer to raise up to £1.0mln for future working capital purposes announced at the start of last month. The AIM-listed food producer said it will issue up to 20,115,190 open offer shares at a price of 5p each.

Union Jack Oil PLC (LON:UJO) has announced that 120,000,000 share options have been granted to David Bramhill, its executive chairman and 60,000,000 share options have been granted to Joe O`Farrell, an executive director. The group said the share options have an exercise price of 0.09p and vest on the third anniversary of the date of grant. The exercise period is between the third and tenth anniversary of the date of grant.

6.45am: Footsie is expected to start on the front foot

London’s FTSE 100 is expected to start Wednesday positively as the British pound remained weaker ahead of the open.

UK inflation worries and Brexit dramas hold down the pound, and, that’s a support for the capital’s dollar-earning multinational blue-chip firms.

The FTSE 100 closed out Tuesday up about 26 points, to 7,626, and the index of London’s top 100 shares is now seen adding further gains this morning.

IG Markets makes the index another 29 points higher, calling it at 7,662 to 7,666 with just over an hour to go until the open.

“The pound was seen consolidating losses overnight after Brexit chaos in the Conservative Party sent sterling on a roller coaster ride in the previous session,” said Jasper Lawler, analyst at London Capital Group.

“Fears that Theresa May could be defeated by pro-Remain conservatives, days after she accepted Brexiters amendments sent the pound 1.5% lower to $1.3079. Her then narrow escape from a humiliating defeat on the customs bill lifted the pound to $1.3110 where it remained in the Asian session.”

“After Theresa May narrowly survived a rebellion from the pro Remain Tory rebels, the next obstacle for the pound will be inflation figures this morning.”

Lawler highlighted that the monthly UK CPI measure of inflation, due this morning, is expected to the return of rising prices during June – with inflation expected to have accelerated to 2.6%, up from 2.4% in May.

In the United States, equities were broadly positive.

Wall Street’s Dow Jones benchmark rose 55 points or 0.22% on Wednesday to close at 25,119 while the S&P 500 added 0.4% to finish at 2,809.

The Nasdaq Composite, meanwhile, rose further climbing 0.63% to 7,855.

In Asia, Japan’s Nikkei was trading up 150 points or 0.66% changing hands at 22,850, meanwhile, Hong Kong’s Hang Seng was slightly lower, down 0.04% at 28,168.

The Shanghai Composite index was in positive territory, rising 0.33% to trade at 2,807.

Australia’s ASX 200 was also on the front foot, advancing 0.6% to 6,240.

Around the markets

  • Sterling: US$1.3095, down 0.15%
  • Gold: US$1,224 an ounce, down 0.1%
  • Brent crude: US$71.88 a barrel, up 0.05%
  • Bitcoin: US$7,446, up 1.8%

Headlines

  • UK wage growth slides to lowest rate in six months – The Guardian
  • No deal Brexit would have 'big consequences' for the UK economy, Mark Carney warns – Mail Online
  • Airbus says Brexit puts at risk its '40 years of success' – Sky News
  • 'Netflix effect' poses challenge to British TV – BBC News
  • Poundworld will shut 40 more stores and axe 531 jobs – Mail Online
  • Ryanair to cancel 24 flights this Friday between Ireland and the UK over Irish pilot strikes – The Sun
  • Amazon CEO Jeff Bezos becomes richest ever man on the planet – Metro
  • Thousands of scientists pledge not to help build killer AI robots – The Guardian

Significant announcements due Wednesday July 18:

Trading updates: easyJet PLC (Q3) (LON:EZJ), Severn Trent PLC (Q1) (LON:SVT), RPC Group PLC (Q1) (LON:RPC), GVC Holdings PLC (LON:GVC), Hochschild Mining PLC (LON:HOC), Premier Foods PLC (LON:PFD), Carr’s Group PLC (LON:CARR), Close Brothers Group PLC (LON:CBG), Alliance Pharma plc(LON:APH), Connect Group PLC (LON:CNCT), New River REIT PLC (LON:NRR)

AGMs: Talktalk Telecom Group PLC (LON:TALK), Experian PLC (LON:EXPN), Bloomsbury PublishingPLC (LON:BMY), BTG PLC (LON:BTG)

Economic data: UK CPI, RPI, PPI, HPI inflation; US housing starts

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