London close: Stocks add to gains despite weakness in UK services

London stocks finished higher on Wednesday, with a weaker pound lending support even as investors mulled a trio of dismal UK PMIs.

The FTSE 100 was up 0.66% at 7,609.32, trading at a 10-month high, while the pound was down 0.23% against the US dollar to 1.25636 and by 0.13% versus the euro at 1.1140, respectively, remaining under pressure after data revealed that activity in Britain's services sector pretty much ground to a halt in June.

Sterling was already weaker before the release, having taken a hit after Bank of England Governor Mark Carney warned the day before that trade tensions and a potential no-deal Brexit were growing risks to the UK economy, raising expectations among market participants of an interest rate cut.

Financial markets were pricing in roughly 50% odds that the Monetary Policy Committee would cut Bank Rate by the end of 2019 and a 55% chance by the time of Carney's departure, in January.

But Pantheon Macroeconomics's Samuel Tombs was unconvinced, telling clients: "We continue to think, however, that a rate cut should not be the base case."

The IHS/Markit CIPS services purchasing managers' business activity index fell to 50.2 from 51.0 in May, missing expectations for an unchanged reading a hitting a three-month low. The index came in just above the 50 mark that separates contraction from expansion.

Subdued activity was attributed to sluggish domestic economic conditions and greater risk aversion amid ongoing Brexit uncertainty. Reflecting this, there was a fractional decline in new business received by service sector companies, while lower volumes of new work have now been recorded in five of the past six months.

The composite index, which includes the construction and manufacturing sectors, fell to 49.2 in June from 50.7 in May (consensus: 51.0), signalling a drop in overall private sector business activity for the first time in nearly three years.

Chris Williamson, chief business economist at IHS Markit, said: "Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.

The services PMI completed a trifecta of poor figures so far this week.On Monday, data showed the UK manufacturing sector slumped in June as a slowing global economy and Brexit uncertainty took their toll. The IHS Markit CIPS manufacturing PMI fell to 48.0 from 49.4 in May, marking the lowest reading since February 2013 and the third consecutive month the index had fallen. It was also below forecasts for a reading of about 49.5.

On Tuesday, meanwhile, it had emerged that UK construction output plunged to a 10-year low in June. The IHS Markit CIPS construction total activity index dropped to 41.3 last month from 48.6 in May, undershooting expectations of 49.2.

Still, Capital Economics said that given the falls in the manufacturing and construction indices, the smaller drop in the services PMI "was a bit of a relief".

In equity markets, Flutter Entertainment surged to the top of the FTSE 100, with traders pointing to speculation about a possible buyout.

Elsewhere, JD Sports Fashion rallied as it expressed confidence that it will at least meet current consensus market expectations for full-year headline pre-tax profit. In a statement ahead of its annual general meeting, the retailer said it had continued to achieve "encouraging" like-for-like sales growth in its core sports fashion in the UK and internationally.

Student accommodation provider Unite advanced after agreeing to buy Liberty Living from the Canada Pension Plan Investment Board (CPPIB) in a £1.4bn cash and share deal.

Cybersecurity companies Avast and Sophos got a boost from news that Broadcom is in advanced talks to buy cybersecurity firm Symantec.

On the downside, Sainsbury's fell as the supermarket chain posted a drop in first-quarter sales and warned that retail markets remain "highly competitive".

Serco was in the red after agreeing to pay a £19.2m fine and £3.7m in costs for overcharging on a UK government contract, while Electrocomponents shares dropped as it reported a slowdown in quarterly sales growth.

Market Movers

FTSE 100 (UKX) 7,609.32 0.66%
FTSE 250 (MCX) 19,790.83 0.67%
techMARK (TASX) 3,752.17 1.19%

FTSE 100 - Risers

Flutter Entertainment (FLTR) 6,838.00p 11.48%
Halma (HLMA) 2,095.00p 3.20%
Auto Trader Group (AUTO) 554.00p 2.78%
JD Sports Fashion (JD.) 618.00p 2.59%
Ocado Group (OCDO) 1,222.00p 2.56%
Imperial Brands (IMB) 1,986.00p 2.53%
United Utilities Group (UU.) 813.20p 2.52%
British American Tobacco (BATS) 2,973.00p 2.50%
Smurfit Kappa Group (SKG) 2,525.00p 2.43%
International Consolidated Airlines Group SA (CDI) (IAG) 486.90p 2.35%

FTSE 100 - Fallers

Anglo American (AAL) 2,220.00p -1.99%
BP (BP.) 546.30p -1.73%
NMC Health (NMC) 2,454.00p -1.05%
Glencore (GLEN) 276.85p -0.95%
Antofagasta (ANTO) 915.00p -0.85%
Royal Dutch Shell 'A' (RDSA) 2,576.00p -0.66%
Royal Dutch Shell 'B' (RDSB) 2,580.50p -0.56%
Sainsbury (J) (SBRY) 198.45p -0.53%
Centrica (CNA) 89.48p -0.51%
BHP Group (BHP) 2,044.50p -0.22%

FTSE 250 - Risers

Sophos Group (SOPH) 423.00p 8.13%
Ted Baker (TED) 864.50p 8.06%
Funding Circle Holdings (FCH) 124.00p 7.27%
William Hill (WMH) 163.70p 4.47%
Contour Global (GLO) 187.80p 4.33%
Plus500 Ltd (DI) (PLUS) 585.20p 3.98%
Restaurant Group (RTN) 141.30p 3.44%
Woodford Patient Capital Trust (WPCT) 58.00p 3.39%
Dixons Carphone (DC.) 114.00p 3.35%
Entertainment One Limited (ETO) 419.00p 3.15%

FTSE 250 - Fallers

Diploma (DPLM) 1,478.29p -5.24%
Bakkavor Group (BAKK) 115.60p -3.99%
Amigo Holdings (AMGO) 182.80p -3.79%
Coats Group (COA) 78.90p -2.47%
IntegraFin Holding (IHP) 379.85p -2.35%
Vivo Energy (VVO) 125.00p -2.34%
Petrofac Ltd. (PFC) 418.30p -2.33%
Sports Direct International (SPD) 266.40p -2.06%
TI Fluid Systems (TIFS) 199.80p -1.82%
Weir Group (WEIR) 1,525.00p -1.61%