London close: Stocks climb on cautious optimism over trade, Brexit

London stocks recouped more of last month's losses on Tuesday, underpinned by optimism over US-China trade talks, rumours of a delay to the Brexit date and bargain hunting by investors.

The FTSE 100 finished slightly off its earlier high, but still up 0.7% at 6,861.60, while the pound was flat against the euro at 1.1128 and down 0.5% against a strengthening dollar at 1.2717.

Lifting the mood in the background was reports of a productive round of talks between Chinese and US officials in Beijing, with a US trade delegation member saying talks had gone well and are set to continue on Wednesday. Follow-up cabinet-level talks are also expected later in January.

Earlier, President Trump said on Twitter that talks "are going very well".

Market analyst Joshua Mahony at IG said stock market gains have been "hugely influenced" by the reports of an extension to the talks. "No doubt, the substantial selloff in play over the past seven months has been hugely influenced by the economic impact of this trade spat, and thus there is reason to believe markets will rise and fall according to how talks progress."

On the home front, reports that the UK officials are looking at potentially getting an Article 50 extension were similarly boosting several domestic sectors, including construction and retail.

Market analyst Connor Campbell at Spreadex said: "If that is the case, it suggests that a) the government remains doubtful Theresa May’s agreement stands any chance of getting through parliament, and b) there really isn’t any appetite for a ‘no deal’ exit."

Earlier, a Daily Telegraph report suggested that Prime Minister Theresa May was in secret last-minute talks with EU leaders about possibly extending the 29 March Brexit deadline.

However, Brexit Secretary Stephen Barclay was quick to quash the report on Tuesday and stress that the government remains committed to leaving the EU in March. Barclay said he had not spoken to the EU about that and any delay would cause "some very practical issues".

On the economic data front, the latest housing figures from Halifax showed house prices surged past expectations in December, but the overall trend remained weak.

House prices were up 2.2% compared to a 1.2% decline the month before and well ahead of expectations for a 0.2% increase. On the year, house prices rose 1.3% after a 0.3% increase in November, comfortably beating expectations for a 0.4% jump.

Pantheon Macroeconomics economist Samuel Tombs said very little weight should be placed on the jump in Halifax’s house prices index in December, pointing out that it is three times as volatile as the Nationwide index. "Looking ahead, surveys indicate that buyer demand has begun to fall sharply again, primarily due to Brexit uncertainty, which should mean that sale prices undershoot asking prices by a greater-than-usual margin. But the decline in risk-free interest rates that Brexit uncertainty also has triggered will feed through to lower mortgage rates soon," Tombs said.

On the corporate front, paper and packaging companies DS Smith and Smurfit Kappa were topping the top-flight index as Jefferies saw an opportunity for a re-rating in the European packaging sector as the market is too negative.

After the stock market tumbles in the final quarter of last year, analysts were pointing out various bargains to investors, with Melrose Industries and Rotork both boosted by notes from Bank of America Merrill Lynch.

Electrocomponents was also on the rise after an upgrade from Jefferies, while Capital & Counties also got a boost from an upgrade to 'add' at Peel Hunt.

Pub operator Greene King rallied as it posted a 10.9% jump in like-for-like sales over Christmas and the New Year and expressed confidence over the full year, while Safestore rose as it reported a 135% increase in full-year pre-tax profit.

Broadcaster ITV gained as analysts at Liberum suggested that the signing of a five-year partnership between Sky and STV could make a tie-up between ITV and Sky more likely.

Retail was a mixed bag. High street stalwarts Next and Marks & Spencer seemed to be boosted by the Brexit news, while Morrisons - the first of the big four supermarkets to report its Christmas trading - was down in the dumps as wholesale growth over the festive period disappointed investors, despite the grocer beating retail forecasts and notching up its fourth consecutive Christmas of growth.

The shares also took a knock after data from Kantar Worldpanel showed the group was the second-weakest among its rivals. Morrisons saw its growth slow to 0.1%, with its market share dropping to 10.6% from 10.8%. Tesco and Asda were top of the big four, while Sainsbury's was bottom.

Analysts at Bernstein said the 0.6% LFL retail growth figure should be "reassuring" against high comparative growth the year before, slightly up versus consensus of 0.5% and "despite a very cautious UK consumer at the end of 2018". However, they noted that the contribution from wholesale missed consensus by 60 basis points, almost all of which was due to the McColl business being transferred after the deal signed early last year.

Elsewhere in the retail sector, sportswear specialist Footasylum slumped after warning that full-year earnings would be towards the lower end of analysts’ forecasts, while gross margin would be lower than current market expectations as a result of heavy discounting over Christmas. The FTSE Smallcap company said it had seen "some of the most difficult trading conditions in recent years" over the festive period, amid economic uncertainty and weakening consumer sentiment.

Lifestyle brand Joules defied the high street gloom, however, as it said it continued to trade well over the festive period, putting on course to achieve its pre-tax profit expectations for 2019.

Elsewhere, building materials group SIG dropped after saying it expects profit for 2018 to drop on the back of lower trading revenue amid challenging market conditions. Most of the construction sector was higher, however, boosted by Brexit hopes.

Kier was also surging and Babcock climbing after both groups won spots on the North West Construction Hub’s high-value framework. Kier was the only listed company to win spots on all three lots, trade magazine Building reported, while Galliford Try and Morgan Sindall were both been dumped by the procurement body from the £1.5bn bidding framework.

Market Movers

FTSE 100 (UKX) 6,861.60 0.74%
FTSE 250 (MCX) 18,175.79 1.11%
techMARK (TASX) 3,359.22 0.63%

FTSE 100 - Risers

Smith (DS) (SMDS) 325.20p 6.27%
Smurfit Kappa Group (SKG) 2,210.00p 6.25%
Next (NXT) 4,849.00p 5.99%
Marks & Spencer Group (MKS) 275.90p 5.83%
Melrose Industries (MRO) 175.60p 5.59%
Ashtead Group (AHT) 1,841.79p 5.04%
Rolls-Royce Holdings (RR.) 850.00p 4.99%
easyJet (EZJ) 1,154.00p 4.91%
ITV (ITV) 131.40p 4.20%
Informa (INF) 644.00p 4.04%

FTSE 100 - Fallers

Morrison (Wm) Supermarkets (MRW) 212.60p -3.21%
BT Group (BT.A) 231.35p -2.77%
Fresnillo (FRES) 895.80p -2.21%
AstraZeneca (AZN) 5,898.00p -1.78%
Vodafone Group (VOD) 155.60p -1.14%
London Stock Exchange Group (LSE) 4,165.00p -0.97%
Smith & Nephew (SN.) 1,409.50p -0.74%
Anglo American (AAL) 1,760.60p -0.58%
Severn Trent (SVT) 1,841.00p -0.51%
Royal Dutch Shell 'A' (RDSA) 2,359.00p -0.38%

FTSE 250 - Risers

Computacenter (CCC) 1,054.00p 8.44%
Serco Group (SRP) 108.60p 6.37%
Just Group (JUST) 100.00p 6.16%
Electrocomponents (ECM) 531.60p 6.11%
Funding Circle Holdings (FCH) 332.00p 6.07%
Bank of Georgia Group (BGEO) 1,455.80p 5.49%
Greene King (GNK) 582.80p 5.35%
Aston Martin Lagonda Global Holdings (AML) 1,274.60p 5.29%
Rank Group (RNK) 149.60p 5.20%
Spirent Communications (SPT) 122.00p 4.63%

FTSE 250 - Fallers

Vivo Energy (VVO) 124.68p -6.38%
SIG (SHI) 110.50p -5.23%
Hikma Pharmaceuticals (HIK) 1,600.50p -5.16%
Contour Global (GLO) 183.90p -3.16%
Centamin (DI) (CEY) 117.05p -3.02%
Stobart Group Ltd. (STOB) 153.20p -2.92%
Premier Oil (PMO) 76.48p -2.45%
Cairn Energy (CNE) 159.50p -1.85%
Acacia Mining (ACA) 196.40p -1.80%
Energean Oil & Gas (ENOG) 638.60p -1.75%