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London open: Stocks start on back foot despite pound’s slide
London stocks started on the back foot on Tuesday, on the back of renewed tensions around Italy’s debt pile and in the geopolitical space between the US and China.
After a quarter of an hour of trading, the FTSE 100 was down 18.8 points or 0.26% to 7,475.97 despite a 0.3% fall in the pound below $1.30.
Sterling was dropping despite reports that Prime Minister Theresa May is working on a major new offer to unblock talks with the European Union over the crucial issue of the Irish border. The Times said May was ready to propose a “grand bargain” which would keep Britain tied to European customs rules on goods after the transition period ends in December 2020.
In parallel, the yield on benchmark 10-year Italian government notes was jumping eight basis points to 3.38% after Eurozone finance leaders failed to endorse the country’s budget plans for 2019 overnight.
Overnight, US markets finished mostly higher, but the Dow Jones Industrials and S&P 500 were unable to notch up fresh record highs while the Russell 2000 of small-cap stocks saw a big drop, continuing its recent trend lower.
That was despite news that Ottawa and Washington had agreed on how to move forward on a revamped trade deal together with Mexico.
Commenting on the situation in markets on Tuesday morning, said Michael Hewson, chief market analyst at CMC Markets UK: “The downside, if there is one, is that the apparent resolution of one problem usually opens up another front, and President Trump went on to aim a few barbs towards the EU, as well as China, at his press conference yesterday, with no signs of a resolution on the China question, after reports that US defence secretary James Mattis was cancelling his trip to China later this month.
“This appears to have weighed on markets in Asia, as Hong Kong shares slid back, though on the plus side the Nikkei continues to remain well supported.”
On that note, on Monday evening the US Navy accused China’s military of “unsafe and unprofessional” behaviour at the weekend around one of the reefs occupied by the Asian giant in the South China Sea.
Against that backdrop, both Asian stock markets and emerging market currencies saw selling pressure overnight.
The economic calendar was light on Tuesday, although Bank of England chief economist, Andrew Haldane, was set to chair a session at the Rebuilding Macroeconomics Annual Conference on “Bringing Psychology and Social Sciences into Macroeconomics”, at 0945 BST, in London.
UK house prices have remained stable, year on year, according to research by mortgage lender Nationwide, with home prices continuing to rise at a 2.0% pace year-on-year in September.
Through the day, investors will also be keeping an eye out for any potentially market-moving headlines out of the Conservative party conference in Birmingham.
In corporate news, Ferguson was falling despite proposing to ‘re-base’ its dividend upwards 10% and lift its final payout 21% ahead of last year, as the plumbing products supplier highlighted its “excellent cash generation and a strong balance sheet”. However, full year pre-tax profits fell to $1.1bn from $1.42bn as tough trading conditions continued in the UK and the company took a $122m impairment charge on its stake in Swiss associate Meier Tobler Group.
Standard Chartered was continuing the decline begun the day before when Bloomberg reported that the Asia-focused bank could be fined $1.5bn by Us authorities over Iran sanctions, 50% larger than the previous estimate of $1bn.
Sports Direct was also moving slightly lower on news that emerged late the previous day, when the retail put out a short statement after the close that it has dismissed the former directors and senior managers of its new House of Fraser acquisition.
Likewise, Royal Mail was down another 7% after releasing a late-afternoon profit warning the day before on the back of lower letter volumes, a dip in parcel profits and slower progress with cost cutting since resolving industrial action in March.
Following its own profit warning at the start of the week, Ryanair put out September traffic figures on Tuesday showing an 11%, or up 6% excluding Laudamotion, impacted by strikes as 400 flights were cancelled. Load factor was unchanged at 97%.
Shell gave the green light to proceed with a major liquified natural gas (LNG) project in Canada where it has a a 40% working interest. Construction will start immediately with first LNG expected before the middle of the next decade, the company said, adding that it forecast an integrated internal rate of return of around 13%, with “significant, long life and resilient” cash flow.
Meggitt was boosted by winning a $323m new contract with the US Defense Logistics Agency to supply wheels, brakes and related spare parts for the F-16 Falcon jet and H-60 Blackhawk and CH-47 Chinook choppers.
