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London open: Stocks edge lower amid Brexit uncertainty
London stocks edged lower in early trade on Tuesday as investors continued to fret about Brexit, with the UK’s deadline for leaving the EU fast approaching.
At 0830 BST, the FTSE 100 was down 0.2% at 7,483.74, while the pound was up 0.1% against the dollar and the euro at 1.3076 and 1.1607, respectively.
Theresa May was due to head off to Berlin and Paris later in the day to meet Angela Merkel and Emmanuel Macron as she looks to convince them to grant the UK a short extension to Article 50 ahead of Wednesday’s EU summit
Meanwhile, in London, talks are set to continue between the government and the Labour Party.
After the passing of the Cooper Act into law overnight, which formalises the process to prevent a no-deal Brexit, CMC Markets analyst Michael Hewson said MP’s failure to reach an agreement means any decision to extend the deadline remains in the hands of the European Union.
“Tomorrow’s EU Council meeting is likely to be when we’ll find out whether EU leaders are minded to grant an extension, and for how long. If EU leaders are minded to extend the deadline it will likely be a much longer one than the UK wants, and will be conditional on the UK taking part in European elections next month,” he said.
Hewson added that in the absence of the UK revoking article 50 or agreeing a deal, an extension seems almost inevitable.
Global trade relations were in focus again as it emerged that the US is considering imposing tariffs on about $11bn of goods from the European Union in response to subsidies that support Airbus.
Neil Wilson, chief market analyst at Markets.com, said: “Whilst at present it looks like a relatively contained problem relating to the ruling on Airbus subsidies, there is a risk of contagion if the EU decides to respond in kind. Moreover, if will not do anything to improve business sentiment in the Eurozone, and we must assume that the ECB will take a rather dim view of the situation with regards to the growth outlook.
“We are now back to where we were before the Juncker visit to Washington – there is a real risk of a tit-for-tat trade battle between the EU and US, and therefore ought to weigh on risk. Meanwhile, we are still waiting for a breakthrough between the US and China – despite warm words, so far nothing has materialised and there is a risk that this equity rally in April is a buy the rumour, sell the fact type trade playing out – sell in May etc, etc.”
On home turf, the latest figures from the British Retail Consortium and KPMG showed retail sales fell in March as Brexit uncertainty held consumers back from making big purchases.
Total sales dropped by 0.5% year-on-year from a 0.5% increase the month before. Meanwhile, like-for-like sales fell 1.1% in March compared to a 0.1% drop in February.
BRC chief executive Helen Dickinson said: “Retail sales slowed in March, even when the Easter distortions were accounted for, as greater uncertainty caused people to hold off from splashing out. While jewellery, beauty products and clothing purchases were all up to indulge on Mother’s Day, shoppers were generally cautious not to overspend, particularly on larger items.
“Brexit continues to feed the uncertainty among consumers. For the sake of everyone, MPs must rally behind a plan of action that avoids no deal – and quickly – or it will be ordinary families who suffer as a result of higher prices and less choice on the shelves.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that excluding Easter, total sales appear to have risen by 2.5%, exceeding the growth rates recorded in January and February, of 2.2% and 0.5%, respectively.
“Granted, the year-over-year growth rate likely was flattered by the impact of bad weather in March 2018 on clothing sales. Even so, the data are consistent with the idea that Brexit uncertainty isn’t prompting consumers to change their expenditure significantly.
“With income tax allowances rising sharply this month and wage growth likely to continue to exceed inflation, we still expect households to ensure that GDP remains on a slowly rising path in Q2, despite the hit to capex from Brexit uncertainty.”
In corporate news, Standard Chartered was in the red following a report the bank is set to pay more than $1bn to resolve a nearly five-year old investigation of potential US sanctions violations related to its Iran-controlled entities in Dubai and a UK probe.
Debenhams shares were suspended as its lenders refused to accept terms from Mike Ashley’s Sports Direct despite his improved proposal to underwrite a £200m rights issue. Ashley also called for the lenders to agree to write off £82m of Debenhams’ £720m total debt facilities, trimmed from his demand of a £148m write-off a day earlier. The department store group is expected to be put into a pre-pack administration within hours.
On the upside, Brewin Dolphin gained ground after announcing an agreement with Avaloq UK to replace its core custody and settlement system.
In broker note action, Go-Ahead was hit by a downgrade to ‘hold’ from ‘buy’ at HSBC, while Hays was cut to ‘equalweight’ from ‘overweight’ by Morgan Stanley.
Meanwhile, Pennon and Severn Trent were both dented by downgrades to ‘neutral’ from ‘overweight’ at JPMorgan.
