London close: Shares gain on Mexico tariff reprieve

London stocks started the week on the front foot amid easing trade tensions, while the pound was under pressure after disappointing UK growth figures.

The FTSE 100 was up 0.59% at 7,375.54, while the pound was down 0.36% against the US dollar at 1.26895 and 0.22% lower versus the euro at 1.1213 as the latest data from the Office for National Statistics showed the UK economy shrank more than expected in April.

Gross domestic product fell by 0.4% on the month in April, coming in much weaker than consensus expectations of a 0.1% contraction, as manufacturing output tumbled by 3.9% - the biggest drop since June 2002 - while that of services stagnated and in construction it shrank by 0.4%.

For the three months to April, GDP growth slowed to 0.3% from 0.5% in March, falling short of expectations for 0.4% growth.

Head of GDP Rob Kent-Smith said: "GDP growth showed some weakening across the latest three months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns.

"There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said April’s drop in GDP almost entirely reflects the unwinding of the boost to activity in the first quarter from precautionary pre-Brexit stockpiling, and pointed to a still bright outlook for households' real income as a reason to remain relatively optimistic.

"We’re reluctant to conclude, however, that the economy has fundamentally lost momentum, given the still-bright outlook for households’ real incomes [...] All told, Q2 GDP now looks set to be awful - we're revising down our forecast for quarter-on-quarter growth to zero, from 0.2% previously - but the chances of growth remaining this weak remain slim. Markets have overreacted in pricing in a 30% chance of the MPC cutting Bank Rate before the end of this year

More broadly, sentiment was underpinned by US President Donald Trump's decision from the previous Friday not to levy tariffs on Mexico over immigration.

Neil Wilson, chief market analyst at Markets.com, said: "Whilst this is positive for risk assets, one should be cautious that this may only embolden Mr Trump to use tariffs as policy tool for the pursuit of non-economic interests. As previously suggested, the EU could be next - maybe to get the 2% defence spending target."

Nevertheless, come Monday, in remarks made to broadcaster CNBC, Trump threatened to raise American tariffs on Chinese goods if China's leader, Xi Jinping, did not meet with him at the next G-20 leaders' meeting in Fukuoka, Japan.

When asked if US tariffs would be hiked immediately absent a meeting, Trump reportedly said: "Yes, it would [...] I think he will go and I think we’re scheduled to have a meeting. I think he’ll go, and I have a great relationship with him. He’s actually an incredible guy, he’s a great man. He’s very strong, very smart, but he’s for China and I’m for the United States."

In equity markets, Ocado was the standout gainer after the online grocer said it was making a £17m investment in the vertical farming industry.

Outside the FTSE 350, Thomas Cook shares surged as the company confirmed that Hong Kong's Fosun Tourism was in talks to buy its tour operating business as the British group faces breakup after issuing three profit warnings in the past year.

On the downside, shares in plumbing products distributor Ferguson led the FTSE 100 fallers as third-quarter revenue fell short of estimates due to slower growth in the US, which is its largest market.

Woodford Patient Capital Trust, the listed fund run by Neil Woodford, also fell heavily, despite reassuring investors that the suspension of his flagship equity fund had not affected its "operational performance".

Market Movers

FTSE 100 (UKX) 7,375.54 0.59%
FTSE 250 (MCX) 19,309.60 0.40%
techMARK (TASX) 3,590.00 0.48%

FTSE 100 - Risers

Ocado Group (OCDO) 1,168.27p 4.67%
Antofagasta (ANTO) 834.40p 3.65%
NMC Health (NMC) 2,268.00p 3.09%
Evraz (EVR) 649.00p 2.53%
Spirax-Sarco Engineering (SPX) 8,760.00p 2.34%
TUI AG Reg Shs (DI) (TUI) 761.40p 2.23%
Standard Chartered (STAN) 709.80p 2.20%
Scottish Mortgage Inv Trust (SMT) 521.50p 2.15%
Micro Focus International (MCRO) 1,978.80p 2.05%
Carnival (CCL) 4,008.00p 2.04%

FTSE 100 - Fallers

Ferguson (FERG) 5,100.00p -4.64%
Fresnillo (FRES) 792.00p -2.73%
Next (NXT) 5,578.00p -2.41%
Imperial Brands (IMB) 2,040.50p -1.57%
United Utilities Group (UU.) 823.20p -1.41%
Hargreaves Lansdown (HL.) 1,913.00p -1.37%
Severn Trent (SVT) 2,054.00p -1.15%
Bunzl (BNZL) 2,157.00p -1.10%
Rolls-Royce Holdings (RR.) 900.80p -1.01%
Direct Line Insurance Group (DLG) 325.50p -0.79%

FTSE 250 - Risers

Just Group (JUST) 51.50p 10.80%
Amigo Holdings (AMGO) 285.50p 10.66%
Contour Global (GLO) 214.00p 5.69%
TBC Bank Group (TBCG) 1,642.00p 3.79%
Ted Baker (TED) 1,346.00p 3.62%
Kaz Minerals (KAZ) 538.80p 3.62%
Syncona Limited NPV (SYNC) 243.00p 3.40%
Kier Group (KIE) 160.70p 3.40%
Bank of Georgia Group (BGEO) 1,656.00p 3.31%
Royal Mail (RMG) 202.20p 3.22%

FTSE 250 - Fallers

Woodford Patient Capital Trust (WPCT) 59.00p -6.05%
Indivior (INDV) 44.20p -3.60%
Galliford Try (GFRD) 656.50p -3.25%
AJ Bell (AJB) 400.00p -2.44%
FirstGroup (FGP) 102.90p -2.37%
Metro Bank (MTRO) 626.50p -2.34%
Entertainment One Limited (ETO) 394.60p -2.08%
Hochschild Mining (HOC) 166.60p -2.06%
NewRiver REIT (NRR) 193.40p -1.83%
TI Fluid Systems (TIFS) 177.80p -1.77%