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London open: Financials lead Footsie lower over Italy budget worries
London stocks nudged lower in early trade on Friday, with the financial sector leading the downside amid the prospect of a clash over Italy’s budget.
The FTSE 100 fell 8.5 points or 0.1% to 7,536.95 in the first hour of trading.
Sterling softened yet further against the dollar to 1.3065 and was slightly stronger versus the euro at 1.1246 as the single currency wobbled to a fresh two-week low against the dollar with investors fretting over the Italian budget.
The Mediterranean country’s government agreed to target a deficit of 2.4% of gross domestic product for the next three years, thus well beyond the 1.6% level being pushed by the country’s finance minister Giovanni Tria but comfortably around the level deemed necessary by co-deputy Prime Minsters Luigi Di Maio and Matteo Salvini as they seek to deliver on their respective electoral promises.
This was “putting two fingers up to Brussels”, said analyst Connor Campbell at Spreadex. “That decision does little to rein in Italy’s debt, as the country had promised the EU it would do, and has hit its banking stocks hard, with their losses leading the FTSE MIB more than 2% lower.”
This in turn has spread to other the indices, with Germany’s DAX and CAC down 0.6% and 0.5% respectively, while the 10-year spread between Germany and Italy is around 29 basis points wider at 265bp.
Whilst US markets closed off their highs, Asian markets powered upwards overnight, supported by a lift in oil, noted Jasper Lawler, market analyst at London Capital Group added, with oil concerns heightened over a tightening in the physical market from Iran’s supply loss and declining Venezuelan output. “Oil will remain in focus across the European session as it is on track for its third weekly gain.”
Brent crude pushed oil to $82.44 a barrel overnight but was back below $82 by the start of the European session.
In UK data Gfk Consumer Confidence missed expectations, falling to -9 from -7 in August, versus the -8 consensus estimate. “The danger is that consumers might capitulate on how they feel about their personal finances,” said Joe Staton, client strategy director at GfK. “If that happens, we’ll see very sharp drops indeed in the overall index score in the months up to March 2019.”
There are inflation and GDP releases in Europe and the US due later.
Among London blue chips, financial stocks were dominating the lower echelons of the Footsie, with non-life insurer Admiral, banks RBS and Barclays, asset manager Standard Life Aberdeen and life insurer Avvia all among the bottom ten.
RSA Insurance was the biggest faller as poor UK underwriting results drove a disappointing overall third quarter, despite reporting a “strong” quarter for its international businesses. Net written premiums for the third quarter were up 4% year-on-year but large and weather losses were above expected levels in the quarter and “particularly elevated” in the UK.
Commercial landlord Shaftesbury fell after saying potential clients for larger and smaller properties in London’s West End were being cautious, with one major retailer pulling out despite having agreed terms.
United Utilities dipped as the water company said it had increased revenue in the first half of the year but that statutory profits will take a hit from extra investment to cope with the long, hot summer.
Games Workshop staggered lower after ex-chairman Tom Kirby sold £20m worth of shares at a price £36.50 apiece, representing around 1.7% of the total. He will hang on to his remaining 4.8% stake for at least 180 more days.
Millennium & Copthorne Hotels dropped only slightly despite new chief executive Jennifer Fox stepping down after less then four months in the job.
Public sector outsourcing specialist Serco soared as it made an unscheduled announcement confirming that trading is set to be stronger than previous guidance for revenues, profitability and cash flow with net debt set to end the year at a lower level too.
EasyJet flew higher as the budget airline said it expected to deliver full year pre-tax profit of between £570-580m, in the upper half of previous guidance and despite the impact of strike action and weather-related air traffic restrictions across Europe.
Miners were mostly higher, led by gold miners Randgold and Centamin.
