London midday: Bounce in real estate and housebuilding stocks lifts FTSE

Share prices remained buoyant in London by midday on Thursday as housing and property companies delivered a surprise bounce from house price data and growing expectations of a Bank of England interest rate cut.

Also lifting sentiment were UK industrial output numbers that came in better than forecasts and rebounding oil prices.

Just before noon in the City, the FTSE 100 was of its day's highs but still up 1.2% to 6,539.70 and likewise the FTSE 250 was holding on to its first gains after three days of falls with a 1.3% rise to 15,880.45.

Equity gains were partially fuelled by the minutes of the latest Federal Reserve meeting indicated the US central bank is not anywhere near raising rates again this year, or even into next year.

“Markets like the idea of lower rates for longer," said Mike van Dulken at Accendo Markets.

On this side of the Atlantic, rates could even be about to fall as the Bank of England reacts to the EU referendum decision, according to trading in overnight index swaps that follows strong hints from Governor Mark Carney last week that rates will be cut this summer.

These interest rate swaps currently imply a 78% chance of a cut from next week's BoE meeting and an 86% probability of a cut by August, with a 27% chance rates will be 0% by then.

The bounce in UK housebuilders and Real Estate Investment Trusts (REITs), which saw Taylor Wimpey, Persimmon, Land Securities and Barratt Developments dominating the FTSE 100 leaderboard, was somewhat of a surprise, said Van Dulken as it came on the day when a seventh UK property fund suspended redemptions for investors, taking the value of frozen real estate funds to more than half of the sector’s £25bn total.

This is both a good and bad thing, Van Dulken said, but while investors may be concerned about the Brexit fallout, "the prompt action by fund managers who find themselves in a difficult position again - this happened in 2007 and 2008 - is likely helping prevent a self-fulfilling prophecy of a market crash playing out".

Analyst Chris Beauchamp at IG added that Thursday's bounce was a continuation of the ebb and flow of sentiment over the past few days in REITs and banks.

"Today, the pendulum has swung back to cautious optimism, but this is likely a pause in an ongoing rout in the share prices. With property funds continuing to shutter, investors are likely to continue to pull money from both banks and REITs on concerns that the UK is entering a property slump."

Muddying sentiment were the latest house price figures from Halifax, which showed prices in June rose 1.3% on a month on month basis but suggesting that underlying growth may be slowing.

Sterling was also off its lows but blessed with little momentum, up 0.13% against the dollar at 1.2948 and up 0.4% on the euro to 1.1695.

Oil prices continued to spring off one-month lows thanks to a larger than expected drawdown in API inventories overnight, with front-month Brent Crude up 1.1% at $49.33 a barrel and WTI up 1.2% at $47.98.

UK industrial output rose 1.4% in May compared with the same month last year, according to initial estimates from the Office for National Statistics, slowing from the revised 2.2% growth in April 2016 but ahead of forecasts for a steeper slowdown to 0.5%. Comparing May's industrial output to the preceding month, the decline was only 0.5%, beating the expected 1% fall even though it was down from the revised 2.1% growth from a month ago.

The data indicated that the sector should provide strong support to overall UK economic growth growth in the second quarter, Capital Economics said, "but the manufacturing sector’s struggles don’t appear to be over yet".

Meeting minutes from the European Central Bank's mid-June June were due at midday, though like their US counterparts' they will be somewhat outdated but could still move the markets.

In company news, Marks & Spencer shares tore lower as the retailer reported a huge drop in clothing sales in the first quarter as new chief executive Steve Rowe's recovery plan for general merchandise took hold, though group sales were up 1.3% and he remained confident in his full year guidance. Food sales in the 13 weeks to 2 July fell 0.9% on a like-for-like basis, hit by the difference in Easter timing compared to last year, but despite an 8.9% slide in LFL sales from the Clothing & Home as the number of promotions was cut back but Rowe saw signs enough to be encouraged despite the "weak market".

Associated British Foods was on the up after it said the significantly weakness in the pound after last week's Brexit vote had improved the outlook for the current financial year and it no longer expect a decline in adjusted earnings per share for the group. “In our next financial year, these rates would have both positive and negative effects on profit. There would be an adverse transactional effect on the profit margin on Primark's UK sales, currently half of its turnover, a favourable transactional effect on British Sugar's margins and a translation benefit on group profits earned outside the UK, which last year were some 50% of the total,” the company said.

Hospitality group Whitbread announced on Thursday that it has exchanged agreements with Legal & General for the sale and leaseback of its 389-room ‘Hub by Premier Inn’ hotel in Kings Cross, due to open in 2017, in exchange for a 25 year lease agreement. The FTSE 100 company announced plans in April to carry out sale and leaseback transactions during this year, with proceeds of £100m to £150m. Legal & General will pay £84.5m in cash for the property, with an initial payment of £46.5m due on exchange and further staged payments made during the construction of the property.

High street retailer Sports Direct sprinted higher in spite of reporting a “disappointing” year, with retail revenue excluding Irish chain Heatons improving by just 0.6%. The FTSE 250 firm said total group revenue was up 2.5% to £2.9bn in the year to 24 April, with gross group margin improving 0.4% to 44.2%. Underlying EBITDA shrunk 0.5% to £381.4m, with underlying profit before tax dropping 8.4% to £275.2m and underlying earnings per share retreating 8.7% to 35.5p. Reported profit before tax was ahead 15.4% at £361.8m, with reported earnings per share reaching 46.8p.

Centamin led fallers in the 250 as the Egyptian gold miner reported second quarter production from its Sukari operation in Egypt increased 12% to 140,306 ounces on the previous quarter and 30% year-on-year. Total first half gold production was 265,574 ounces, the company added. Centamin said quarterly throughput at the process plant was 2,929kt, a 2% increase on the previous quarter. Annualised throughput exceeded its base case target rate of 11 million tonnes per annum (Mtpa).

FTSE 100 - Risers

Associated British Foods (ABF) 2,776.00p 8.73%
Taylor Wimpey (TW.) 124.40p 7.33%
Persimmon (PSN) 1,376.00p 6.75%
Anglo American (AAL) 774.50p 6.07%
Provident Financial (PFG) 2,349.00p 5.34%
Schroders (SDR) 2,308.00p 4.86%
Glencore (GLEN) 167.10p 4.67%
Land Securities Group (LAND) 965.00p 4.61%
Lloyds Banking Group (LLOY) 49.74p 4.61%
Barratt Developments (BDEV) 347.70p 4.54%

FTSE 100 - Fallers

Randgold Resources Ltd. (RRS) 9,490.00p -2.32%
Marks & Spencer Group (MKS) 290.00p -1.39%
Pearson (PSON) 942.00p -1.31%
Fresnillo (FRES) 1,990.00p -0.90%
Burberry Group (BRBY) 1,160.00p -0.77%
Hikma Pharmaceuticals (HIK) 2,549.00p -0.74%
National Grid (NG.) 1,110.50p -0.45%
Mondi (MNDI) 1,364.00p -0.37%
Mediclinic International (MDC) 1,104.00p -0.18%
Next (NXT) 4,737.00p -0.11%

FTSE 250 - Risers

Thomas Cook Group (TCG) 59.35p 8.60%
NCC Group (NCC) 283.10p 8.09%
Crest Nicholson Holdings (CRST) 354.10p 5.70%
International Personal Finance (IPF) 275.10p 5.56%
Vedanta Resources (VED) 479.40p 5.43%
Just Eat (JE.) 443.80p 5.34%
Intermediate Capital Group (ICP) 477.30p 5.22%
Aberdeen Asset Management (ADN) 286.40p 5.14%
UK Commercial Property Trust (UKCM) 72.75p 4.98%
Amec Foster Wheeler (AMFW) 443.40p 4.82%

FTSE 250 - Fallers

Centamin (DI) (CEY) 159.20p -3.98%
McCarthy & Stone (MCS) 139.70p -3.66%
TalkTalk Telecom Group (TALK) 210.50p -3.04%
Pennon Group (PNN) 905.00p -2.95%
Telecom Plus (TEP) 1,008.00p -2.61%
Safestore Holdings (SAFE) 321.90p -2.51%
Galliford Try (GFRD) 788.00p -2.35%
Atkins (WS) (ATK) 1,266.00p -1.78%
Vectura Group (VEC) 149.70p -1.71%
CLS Holdings (CLI) 1,190.00p -1.65%