London close: Footsie falls under pressure from pound

London stocks retreated under pressure from a rising sterling on Tuesday as solid employment figures mingled with optimism that parliament will take the possibility of no-deal Brexti off the table.

The FTSE 100 dropped 1% to 6,901.39 as sterling rose 0.6% against the dollar and the euro to 1.2966 and 1.1409, respectively.

"Global stocks have retained a somewhat downbeat tone throughout today’s session, as growth concerns continue to drag demand for risk assets," said market analyst Joshua Mahony at IG.

"Yesterday’s IMF growth downgrade remains a worry given their reference to a host of factors, including Brexit, US-China trade, and Italian fiscal issues. However, while the IMF sees a no-deal Brexit as a huge risk for global economic stability, they will be watching intently at events in Westminster after a host of MPs tabled amendments with the aim of ruling out such an event."

Prime Minister Theresa May continued to insist that the only option to avert a no-deal Brexit is to either cancel Brexit or vote through her deal.

Currency analysts at Rabobank argued that an extension to the 29 March deadline was yet possible: “The pound has taken some comfort from news that a Brexit delay bill would likely be approved by lawmakers. This has been proposed by a cross-party group of MPs and would extend Article 50 if a deal was not in place by the end of February.

“While this would remove the prospect of a hard a Brexit, plenty of political uncertainty remains in the UK and this suggests that the coming week or so could be another rocky ride for the market.”

Labour market data from the Office for National Statistics mostly provided support to the pound too, showing that the number of people in work in Britain has risen to its highest level since records began in 1971, with wage growth at a 10-year high.

There were an estimated 32.53m people in work in the UK between September and November 2018. That was 141,000 higher than June to August and up 328,000 on the previous year. The figure represents an employment rate of 75.8%.

The unemployment rate was 4%, the lowest since the three months to February 1975 and slightly below a consensus of 4.1%. The number of people out of work was 1.37m, up marginally on the previous three months but down 68,000 year-on-year.

Wage growth continued to outpace inflation, with average weekly earnings ahead 3.4% year-on-year including bonuses, or 3.3% excluding them - the highest annual growth rate since September to November 2008.

David Cheetham, chief market analyst at XTB, welcomed the numbers. "With inflation recently falling back close to the Bank of England’s 2.0% target, this represents a decent increase in real wages for workers which will likely aid consumption going forward.

"The pound has risen to its highest level of the week in the immediate reaction, and trades back above the $1.29 handle once more. The strong data is all the more pleasing given the ongoing uncertainty surrounding Brexit and just serves to illustrate that despite the continued headwinds, the labour market is holding up surprisingly well."

In corporate news, global mining giant BHP was on the back foot as it said second-quarter iron ore production fell 6% and reported a $600m negative impact due to production disruptions at copper and iron ore operations.

Close Brothers was in the red as the merchant bank said its performance over the five months to 31 December 2018 was solid overall, but volumes and trading income at its securities arm, Winterflood, were hit by volatile equity markets.

Elsewhere in the financial sector, IG Group slumped after the online trading group posted a 17% drop in first-half pre-tax profit.

Wood Group was the worst performer on the FTSE 100 as Exane downgraded the stock amid concerns over its accounting.

On the upside, EasyJet was the standout gainer on the top-flight index as the budget airline reported a 14% jump in total revenue, a 20% rise in ancillary revenue and a 12% increase in passenger numbers for the first quarter. It also revealed a £10m cost impact from the drone incident at Gatwick related to customer welfare costs.

Retailer Dixons Carphone gained after it backed its full-year profit guidance as it reported mixed trading over the Christmas period, with electricals sales up but mobile sales down.

RPC was in the green following a WSJ report that private equity firm Apollo Global Management could announce a takeover of the plastic packaging supplier, while thread manufacturer Coats rose as it announced the sale of its North American crafts unit for $37m.

In broker note action, Peel Hunt made a series of ratings changes, downgrading Aggreko to 'reduce' and Rentokil to 'hold', and upgrading Babcock, Restore and Equiniti to 'buy'.

Morgan Stanley cut IAG and Shell to 'underweight', while St James's Place was hit by a downgrade to 'neutral' from 'outperform' at Credit Suisse.

Market Movers

FTSE 100 (UKX) 6,899.00 -1.03%
FTSE 250 (MCX) 18,667.02 -0.51%
techMARK (TASX) 3,386.66 -0.32%

FTSE 100 - Risers

easyJet (EZJ) 1,233.50p 6.20%
Ocado Group (OCDO) 914.40p 3.25%
Kingfisher (KGF) 222.80p 2.34%
Sainsbury (J) (SBRY) 277.50p 1.65%
Fresnillo (FRES) 908.60p 1.43%
Whitbread (WTB) 4,915.00p 1.24%
Associated British Foods (ABF) 2,386.00p 1.19%
Informa (INF) 684.40p 1.18%
Direct Line Insurance Group (DLG) 330.30p 0.73%
Johnson Matthey (JMAT) 3,044.00p 0.69%

FTSE 100 - Fallers

Wood Group (John) (WG.) 524.80p -4.09%
Evraz (EVR) 447.60p -3.49%
GVC Holdings (GVC) 689.50p -3.02%
Royal Dutch Shell 'B' (RDSB) 2,334.50p -2.85%
Royal Dutch Shell 'A' (RDSA) 2,309.50p -2.63%
Rio Tinto (RIO) 3,836.50p -2.40%
Croda International (CRDA) 4,800.00p -2.32%
Glencore (GLEN) 289.95p -2.06%
Smith & Nephew (SN.) 1,441.00p -2.04%
Melrose Industries (MRO) 169.40p -1.97%

FTSE 250 - Risers

Charter Court Financial Services Group (CCFS) 287.60p 4.28%
Dixons Carphone (DC.) 142.95p 3.93%
Sophos Group (SOPH) 323.00p 2.74%
Coats Group (COA) 84.30p 2.31%
Safestore Holdings (SAFE) 539.00p 2.18%
Cairn Energy (CNE) 189.10p 2.16%
Hastings Group Holdings (HSTG) 203.60p 2.11%
CLS Holdings (CLI) 237.00p 1.94%
Superdry (SDRY) 533.50p 1.91%
Equiniti Group (EQN) 216.50p 1.64%

FTSE 250 - Fallers

IG Group Holdings (IGG) 580.00p -9.52%
Sirius Minerals (SXX) 20.80p -7.06%
Aggreko (AGK) 712.10p -4.80%
Senior (SNR) 211.20p -3.47%
Tullow Oil (TLW) 196.25p -3.47%
Hunting (HTG) 546.00p -2.85%
Daejan Holdings (DJAN) 5,810.00p -2.84%
Computacenter (CCC) 1,018.00p -2.68%
BlackRock Smaller Companies Trust (BRSC) 1,295.00p -2.63%
Petrofac Ltd. (PFC) 539.80p -2.49%