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London close: Stocks finish on a mixed note amid pound weakness

By Alexander Bueso

Date: Thursday 21 Mar 2019

London close: Stocks finish on a mixed note amid pound weakness

(Sharecast News) - London stocks finished on a mixed note on Thursday, with some investors visibly more nervous as they moved to discount increased risks of a hard Brexit.
Banks were notable on the downside as investors digested a dovish policy announcement from the Federal Reserve overnight and the Bank of England left interest rates unchanged at 0.75%, as expected.

By the end of trading, the FTSE 100 was up 0.88% to 7,355.31, benefiting from the Brexit uncertainty, while the domestically-focused FTSE 250 was down 0.27% at 19,366.96.

The pound was down 1.08% against the US dollar at 1.30560 and down by 0.51% versus the euro to 1.1505.

The Bank's monetary policy committee was unanimous in its decision to maintain the status quo for now. But the MPC did forecast UK economic growth of 0.2% for the final quarter of 2018, weaker than the 0.3% previously expected.

Whatever form Brexit takes, the potential monetary policy response is not automatic, the MPC meeting minutes noted, and could be in either direction, but if Brexit goes smoothly, the response is likely to be for gradual but limited policy tightening.

The unanimous vote was as expected, said analyst David Cheetham at XTB. "It's not surprising the bank have decided to remain in wait-and-see mode given the major political uncertainty at present, and don't expect anything drastic from them until there's greater clarity on Brexit. The market reaction has been pretty quiet with the GBP/USD rate remaining near its lowest level of the day."

Overnight, the US central bank stood pat on interest rates on Wednesday, as expected, holding steady on its target of between 2.25% and 2.5%. More strikingly, the central bank also made it clear that no further increases in its interest rate targets would be delivered this year, given inflation was waning and economic growth was slowing.

Federal Open Markets Committee members continue to indicate they believe the balance sheet runoff will end by September, while also slashing their US economic growth estimate for the year to 2.1%.

FOMC members also agreed to take the shears to the Fed's personal consumption expenditure (PCE) inflation forecast, dropping it to 1.8% from a previous 1.9%, while its core PCE estimate remained at 2%.

In the post-meeting press conference, Fed chair Jerome Powell said there was "no need to rush to judgment" when it came to its more cautious stance, with the Fed's policy on its balance sheet set to ensure a "smooth [and] predictable" end to its runoff.

BREXIT WATCHING

Above and beyond the BoE announcement, the big focus was on Brexit news as EU members prepare to decide whether or not they will allow Theresa May's request for an extension of Article 50 to 30 June, but speculation was intense that the bloc would only allow any extension to run until 22 May and always subject to the condition that Parliament first approve a withdrawal deal.

May is now in a race against time to win approval for her deal, and then hold a vote in both houses of parliament to change the 29 March exit date set in the EU Withdrawal Act, provided all 27 EU states agree to an extension. If she fails, Tusk left the door open for an emergency summit to potentially approve a longer Article 50 delay.

But there were also some voices, such as that of CBI director general, Carolyn Fairbairn, who said the UK was facing a "national emergency" and called on the Prime Minister to stop trying to ram her deal through Parliament.

CMC Markets analyst Michael Hewson said: "It is slowly becoming apparent that patience is wearing thin amongst EU leaders, and it's not hard to sympathise with that sentiment, but putting a gun to the heads of MPs here is probably not the best way to achieve a conclusion to this particular problem."

There was data from the Office for National Statistics on Thursday, which showed UK retail bounced back more than expected last month, boosted by online non-food shopping and motor fuel sales. Retail sales volumes increased 0.4% in February compared to January, better than the fall of 0.4% that economists were expecting.

Year-over-year growth eased to 4.0% from 4.1% in January but was again better than the average forecast of 3.3%.

There was also an update from the ONS on the government deficit, with borrowing falling to a 17-year low for the financial year so far, supporting improved official forecasts and giving the Chancellor room to ease the strain on public services.

Borrowing from April 2018 to February 2019 was £23.1bn - £18bn less than in the same period a year earlier. The figure was the lowest year to date borrowing since April 2001 to February 2002.

In equity markets, miners were the standout gainers, with Rio Tinto, Antofagasta, Glencore and BHP all higher as copper prices rallied.

Precious metals miners were also on the rise as gold prices hit a three-week high on the back of the dovish Fed statement, with Fresnillo topping the FTSE 100 and Centamin topping the 250, followed closely by Acacia and Hochschild.

Going the other way, RBS, Lloyds and Barclays were among those hit by the softer rate talk from the Fed.

Clothing retailer Next reversed early losses after it confirmed full-year sales and profits in line with its pre-close statement in January and maintained its guidance for earnings to grow 3.6% for the year ahead. Total group sales of £4.2bn were generated in the year to January, up 2.5% on the previous year, while profit before tax was down 0.4% to £722.9m.

Housebuilders were weaker after Persimmon said it was set to become the first major UK housebuilder to adopt a policy where standard contracts will allow for 1.5% of the total home value to be withheld by the buyer's solicitor until any faults identified at the point of key release are resolved.

Taylor Wimpey, Barratt Developments and Crest Nicholson all retreated, with analysts pointing out that this is a bearish development for the sector that will put pressure on working cash flows and margins.

Engineering company Renishaw saw its shares fall sharply as it cautioned that full-year results would come in below previous guidance.

Fashion brand Ted Baker slumped as it reported a 26.1% drop in annual profit following a "difficult" year in which it was hit by a "forced hugging" scandal that culminated in the resignation of founder and boss Ray Kelvin.

In broker note action, Capital & Counties, Derwent London, Shaftesbury and Great Portland Estates were all initiated at 'hold' by Panmure Gordon, while JPMorgan started Assura at 'neutral'.

EasyJet was lifted to 'neutral' at MainFirst, while IAG was downgraded to 'neutral' by the same outfit.

Compass was downgraded to 'sell' at Goldman Sachs and Lookers was cut to 'neutral' by JPMorgan, while Berenberg cut Merlin Entertainment and Bodycote to 'sell' and 'hold', respectively.

Market Movers

FTSE 100 (UKX) 7,355.31 0.88%
FTSE 250 (MCX) 20,751.30 7.03%
techMARK (TASX) 3,573.92 0.30%

FTSE 100 - Risers

Hikma Pharmaceuticals (HIK) 1,762.00p 6.95%
Fresnillo (FRES) 832.80p 3.95%
Reckitt Benckiser Group (RB.) 6,538.00p 3.86%
Experian (EXPN) 2,093.00p 2.90%
GlaxoSmithKline (GSK) 1,566.00p 2.72%
Associated British Foods (ABF) 2,370.00p 2.64%
Next (NXT) 5,316.00p 2.59%
Unilever (ULVR) 4,399.50p 2.50%
Ocado Group (OCDO) 1,244.00p 2.39%
Coca-Cola HBC AG (CDI) (CCH) 2,646.00p 2.36%

FTSE 100 - Fallers

Royal Bank of Scotland Group (RBS) 248.60p -6.19%
Phoenix Group Holdings (PHNX) 677.50p -3.21%
easyJet (EZJ) 1,176.00p -3.13%
Lloyds Banking Group (LLOY) 63.25p -2.77%
Persimmon (PSN) 2,160.00p -2.35%
Barclays (BARC) 160.58p -2.35%
WPP (WPP) 847.40p -1.94%
Barratt Developments (BDEV) 584.80p -1.71%
NMC Health (NMC) 2,584.00p -1.60%
Smurfit Kappa Group (SKG) 2,286.00p -1.47%

FTSE 250 - Risers

Hochschild Mining (HOC) 202.00p 4.02%
Vivo Energy (VVO) 129.98p 3.98%
Acacia Mining (ACA) 204.00p 3.81%
Hunting (HTG) 624.00p 3.31%
Aggreko (AGK) 775.20p 3.17%
Polar Capital Technology Trust (PCT) 1,300.00p 3.01%
Inmarsat (ISAT) 510.00p 2.97%
Centamin (DI) (CEY) 92.20p 2.81%
Rank Group (RNK) 161.60p 2.80%
Baillie Gifford Japan Trust (BGFD) 769.00p 2.67%

FTSE 250 - Fallers

Renishaw (RSW) 3,757.88p -10.53%
Crest Nicholson Holdings (CRST) 354.20p -8.90%
Amigo Holdings (AMGO) 178.68p -8.37%
Kier Group (KIE) 399.20p -7.03%
Ted Baker (TED) 1,601.00p -6.37%
IG Group Holdings (IGG) 515.00p -6.02%
Merlin Entertainments (MERL) 346.70p -6.02%
Just Group (JUST) 68.70p -5.63%
Indivior (INDV) 107.10p -5.60%
Hammerson (HMSO) 349.10p -5.24%

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