Market buzz: Pound pops as GDP revised up, TalkTalk slides

1630:Close London stocks finished an already strong quarter - powered by gains in the oil majors - on an up note, despite a bounce in the pound on the back of a stronger-than-expected reading on first quarter gross domestic product and for services sector activity during April.

Over the second quarter, both the top flight index and the FTSE 250 clocked in with gains of roughly 8%, despite the poor readings for the economy covering the first three months of the year.

Indeed, both British benchmarks managed to roughly double the gains seen in the S&P 500 over that same time period.

However, year-to-date it is the second-tier index which has done best.

1418: TalkTalk shares are down after it called off the sale of its direct B2B business to Daisy Group that had been announced last month.

1405: The US core PCE prices index, the Fed’s preferred inflation measure, rose 0.2% month-on-month which this took the annualised rate to 2.0%, finally hitting target. Personal spending dropped to +0.2% against an expected +0.4% and personal income measure picked up a touch from last month.

Even though real consumption was unchanged in May, Capital Economics says big gains in previous months mean that consumption growth is still on track to rebound in the second quarter overall, to around 3% annualised, from 0.9% in the first quarter. "Together with a big contribution from investment and net trade, that would leave overall GDP growth on track to rise by 3.5% - 4.0% annualised."

Looking at core PCE, analyst David Morrison at GKFX observes that it continues to lag the headline inflation rate which, at 2.8% in May, is at its highest level since February 2012.

"The last two months have seen annualised Core PCE appear to top out around 1.8% although the trend has been strongly upward for the past nine months. Today’s number will reinforce the view that inflation is set to overshoot in the coming months although the Fed has indicated that it’s quite relaxed about this.

"Overall, there’s nothing here to suggest that the Fed should back away from hiking rates two more times before the year-end. This should keep the dollar supported but could present a headwind for equities and emerging market currencies. If the yield curve continues to flatten and there’s no backing down from Trump’s tariff rhetoric then we can expect volatility to pick up over the next quarter."

1401: After reports that President Trump was pushing to pull the US out of the WTO, Treasury secretary Steven Mnuchin has told Fox Business Network the reports were wrong and termed it as "an exaggeration".

1219: The London midday market report finds stocks have pared gains a little as the pound shot higher following the upward revision to first-quarter GDP.

The FTSE 100 was up 0.7% to 7,664.79, off earlier highs as sterling rose 0.5% against the dollar to 1.3139 after data from the Office for National Statistics showed that UK economic growth was stronger than first estimated in the first quarter.

In company news, Micro Focus is the standout gainer as Goldman Sachs put the company on its list of potential mergers and acquisitions.

BAE Systems is up on the back of the £20bn contract by the Australian government to build its fleet of nine new navy frigates. Other defence related companies, including Rolls-Royce, which supplies propellers and other parts to the Type 26 frigates, and Melrose, were higher on reports that the Ministry of Defence is confident it will be able to wring a larger budget from the Treasury.

1130: According to Axios, Trump has told his advisors that he wants the US to withdraw from the WTO.

1008: Better than expected UK growth in the first quarter "has perhaps sewed the first seeds of recovery for the pound" after the currency hit a seven-month low against the US dollar yesterday, says analyst David Cheetham at XTB, as odds of an August rate hike from the BoE increase.

Cheethan notes that the upwards revision in GDP is in keeping with the bank’s comments that Q1 data is typically subject to revisions.

Sterling has slumped around 10% in a little over two months since its April peak largely due to the BoE backing down on a May rate hike.

Anthony Kurukgy, senior sales trader at Foenix Partners, adds: "UK Chief Economist Andy Haldane surprised UK markets last week by joining the MPC’s dissenters in favour of a rate hike, which he would have done a month earlier had UK economic data “held firm”. With the latest UK GDP figures beating expectations (0.2% vs 0.1%) this morning, the Bank of England heavyweight economist may have got his timing just right. If indicators continue to hold firm over the coming weeks, expectations of an August rate hike will leave little room for debate."

0948: The UK index of services has improved to 0.3% in April on a month-on-month basis, as expected, from the 0.1% growth in March. For the three months to April, the index was up 0.2%, down from the 0.3% in March but better than the no-change that markets had expected.

0942: Also helping the pound, EU chief Brexit negotiator Michel Barnier says "we have made progress", although says there is still divergence over Ireland border issues. He says he is ready to invite the UK for more talks on Monday.

0932: The pound is scorching higher as UK first-quarter GDP has been revised higher, up to 0.2% on a quarter-by-quarter basis from the initial 0.1% readings.The final GDP reading showed construction revisions helped push growth higher, as households borrowed more.

Compared to last year, GDP was 1.2% higher, as initially indicated.

Household expenditure rose 0.2% in the first quarter, while the saving ratio fell 0.4%.

0929: A turbulent week seems to be coming to a brighter end for Africa-focused budget airline FastJet, as the company announces plans for a $10m fundraise which provides enough working capital to see it through the remainder of 2018.

“This emergency capital raise should not obscure the fact that this is a business in serious trouble," cautions AJ Bell investment director Russ Mould. "Since the middle of 2016 it has had to return to the market for cash on five separate occasions and you have to question when investors will run out of patience with the company.

“For now, largest shareholder, South African airline, Solenta Aviation appears willing to provide its support. In a messy set of 2017 results also announced today, the company did provide some cause for hope as it slashed operating costs by nearly 50%.”

0855: After Greene King's sizeable fall yesterday, broker Canaccord says its FY19 and FY20 forecasts are essentially unchanged as results were in line with consensus and the pub group has enjoyed a positive start to the new year. "We are encouraged by the increasing flexibility it is building into the balance sheet: 27% of EBITDA is now outside the securitisations. We retain our Hold recommendation but increase our target price to 600p from 520p."

Also looking at Weir, the broker belatedly integrates the acquisition of Esco into its forecast model, adding over 20% to EBITDA from the minerals division with a significantly higher drop-through of revenue to earnings - closer to 50% than the 25% that the division has averaged over the past few years.

"Consequently, with mining investment continuing to run at a good clip we believe there is a strong chance that Minerals hits or even exceeds the top of consensus profitability estimates over the next two years. Given this view, which we believe to be the single most important factor in the valuation of Weir, combined with some short term share price weakness, we are lifting our price target to 2500p," analysts said, reiterating their rating of 'buy'.

0843: Among the fallers this morning is Serco, down 5% in morning trading after the outsourcing company cut its FY 2018 revenue guidance by 6%, from £2.8-2.9b to £2.7-2.8b, but maintained its profits guidance at £80m.

This suggests higher profits margins for the company on the back of transformational cost savings, says Accendo Markets research analyst Artjom Hatsaturjants.

"Hence we wonder if the share price movement might be an overreaction to the damning headline that screams 'revenue warning', while the actual result could have a positive spin in the long run in terms of better profitability."

Serco blamed the reduction of projected revenue on currency headwinds from contracts that concluded in 2017.

"Investors should be wary of potential for the projects pipeline to shrivel as the UK government is reassessing its contract outsourcing practices in the wake of Carillion’s collapse. And yet, given all of that, it is heartening to see a company working proactively on controlling costs and protecting hard-won profits for shareholders."

0833: The FTSE 100 has surged higher, up more than 1% to 7,692.20.

The positive start is supported by gains in tech, telecoms and financial gains on Wall St, which has seen Micro Focus top the leaderboard, plus sentiment has been boosted by Chinese stocks rebounding from the recent trade-war-inspired sell-off, says Mike van Dulken, head of research at Accendo Markets.

"UK banks passing Fed stress tests likely also helps after recent declines. Another EU summit fudge on migration may serve to calm things on the continent, although PM May was still criticised for lack of negotiation progress on Brexit."

The pound is up off its seven-month low as the USD pulls back following a disappointing final read for Q1 GDP.

British American Tobacco and Imperial Brands are both shrugging off Australia's victory at the WTO over plain packaging, which could lead to more such regulation worldwide.

0739: Traders expect the FTSE 100 is expected to pop 51 points higher this morning, having ended roughly flat at 7,615.63 the day before.

Overnight, Wall Street turned around earlier losses by the close, as investors shrugged off confusion over Trump's trade plans and disappointing GDP data and instead supported a rally for financial plays and technology stocks. The Dow Jones Industrial Average was ahead 0.41% at 24,216.05, the S&P 500added 0.62% to 2,716.31, and the Nasdaq 100 was up 0.89% at 7,031.60..

Later today we have the UK's final Q1 GDP revision, which is expected to confirm the UK economy only grew 0.1% due to the hit from the Beast from the East weather front.

While European stocks have had a tough time, the FTSE 100 has had a better time of it helped by rising commodity prices and a weaker pound over the past few weeks, notes market analyst Michael Hewson at CMC Markets, even though equity markets everywhere have hardly had an easy ride.

Looking at sterling, Hewson says fall below trend line support from the 2017 lows at $1.3110 potentially opens up a deeper move towards 1.2980, with a move back through 1.3120 needed to stabilise and argue for a move back to the 1.3220 area.

"The pound has had a disappointing quarter, hitting its lowest level against the US dollar this year, undermined by the failure of the Bank of England to deliver on a widely telegraphed rate rise in May, as well as growing uncertainty and anxiety about the progress of Brexit negotiations. The shambolic approach adopted by the UK government, as well as the failure of the opposition to hold the government to account, has raised concerns about the calibre of the political class in adopting any type of orderly Brexit process, as we head towards the business end of the negotiation process."

0725: The euro has shot up after EU leaders reached a deal on migration, ending a tense summit in Brussels shortly before dawn. Donald Tusk, head of the European Council, tweeted that EU leaders had reached an agreement, including on migration, with some EU countries promising to take in migrants rescued from the Mediterranean sea.

After slumping close to 11-month lows the euro has jumped 0.6% against the dollar and 0.3% on the pound after the deal.

"The migrant crisis in Europe threatened German Chancellor Angela Merkel’s fragile coalition, which was in danger of collapsing if she left the summit without a deal," says market analyst Jasper Lawler at London Capital Group.

"Inflation data this morning could help boost the common currency. Eurozone CPI is expected to tick higher in June to 2% y/y, which is mainly energy price driven. Regardless, this would still support the case of further tightening and be an encouraging sign after the dovish ECB comments at the June policy meeting. Should this be the case then we could see the euro look to regain the €1.18 handle."

Later in the session US core PCE price index for May will be released, the Fed’s preferred measure of inflation, which is expected to have ticked another 0.2% higher in May, as in April. This would take the year on year reading to 1.9%, just shy of the Fed’s 2% target.

"Looking back to the FOMC the Fed indicated that here would be two more rate rises across the remainder of the year, taking the total to four," says Lawler. "The market has yet to convincingly price in a fourth and final rate hike, with the probability at just 28% for the final hike to go ahead. A strong inflation reading could go some way to lifting the probability of a total of 4 rate hikes across the year and could therefore boost the dollar."