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London open: Stocks drop as pound steady after Brexit extension
London stocks fell at the open on Thursday as investors digested news of a Brexit extension to the end of October.
At 0840 BST, the FTSE 100 was down 0.4% at 7,394.15, while the pound was flat against the dollar at 1.3090 and 0.1% weaker versus the euro at 1.1598.
Prime Minister Theresa May had requested an extension until 30th June, but the EU agreed late on Wednesday to extend Article 50 until 31st October, with a review on progress in June.
Neil Wilson, chief market analyst at Markets.com, pointed out that sterling briefly rallied against the US dollar but cable was unable to maintain any bid above 1.31.
“The problem for traders and investors is that the extension to October 31 does not bring us any closer to a resolution. The cliff-edge has simply been pushed back. We are in a period of peak uncertainty for UK politics and that won’t help investors pile back into UK assets. We must anticipate Theresa May continuing to try to ram her deal home at whatever cost,” he said.
“If there is not enough time in this extension for a referendum or General Election, then it would seem altogether pointless. This delay does nothing to remove uncertainty, only prolong it, unless it allows enough space for ref2 and or GE.”
Meanwhile, analysts at Capital Economics said that while the extension removes any risk of a no-deal Brexit, it probably delays the chances of a decent rebound in GDP growth until sometime in 2020.
Away from Brexit, market participants were mulling the latest FOMC minutes released overnight.
CMC Markets analyst Michael Hewson said the minutes appeared to offer up more questions than answers.
“Expectations of a dovish set of minutes were shown to be somewhat wide of the mark as several policymakers kept the door open to possibly raising rates later in the year, if the economy were to evolve in line with their expectations.
“While this was a minority view with most participants expecting rates to remain unchanged for the rest of the year, they certainly didn’t chime with the narrative markets took away from the dovish volte face that we saw in the aftermath of the March decision to keep rates on hold.”
On home turf, the Royal Institution of Chartered Surveyors said earlier that its monthly house price balance rose to -24 in March from -27 in February.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The RICS survey continues to signal that both house prices and activity levels fell, albeit at a slightly less severe rate in March than in February. Despite its rise, the headline house price balance remains consistent on past form with a 2% year-over-year drop in house prices. In addition, the rise in the new buyer enquiries balance to -27, from -40 in February, still leaves it weaker than at any other point between May 2011 and December 2018.
“Buyer enquiries continued to fall in all regions, though prices remain under greatest downward pressure in London and the South East. While sale instructions also still are falling rapidly – the new instructions balance fell to -30, its lowest level since the referendum, from -29 – this isn’t preventing prices from declining modestly.”
In equity markets, ex-dividends took just under eight points off the FTSE 100, with Standard Life Aberdeen, Aviva, ITV, Mondi, Ultra Electronics, BBA Aviation, Unite Group, Barratt Developments, Croda, Equiniti, International Personal Finance, Merlin Entertainment, Paddy Power Betfair, Rentokil, Rotork and Savills all in the frame.
On the upside, travel stocks EasyJet, IAG and Tui were all higher following the extension to Article 50, which takes us over the critical summer months for such companies.
WH Smith was in the green as it posted an 8% jump in interim revenue thanks to a strong performance from its travel division, but a drop in profit following its acquisition of US airport store InMotion.
Fashion brand Ted Baker was on the front foot as it appointed Lindsay Page as its new chief executive officer and said it had identified “several areas for improvement” following its investigation into allegations about former CEO Ray Kelvin.
DIY group Grafton gained as it announced the acquisition of Polvo of the Netherlands from the privately-owned Pallieter Group for €131m.
Glencore was knocked lower by a downgrade to ‘neutral’ at Goldman Sachs, while Hiscox was cut to ‘hold’ at Berenberg and Lancashire was upgraded to ‘buy’.
Ocado was hit by a downgrade to ‘reduce’ at HSBC, while Rio Tinto was cut to ‘underperform’ at Exane and Whitbread was downgraded to ‘equalweight’ at Morgan Stanley.
IWG rallied on the back of an upgrade to ‘buy’ at Peel Hunt.
