London midday: Stocks extend gains ahead of payrolls

London stocks had extended gains by midday on Friday, with the mood underpinned by rate cut hopes and optimism over trade talks between the US and Mexico, as investors eyed the release of the latest non-farm payrolls report.

The FTSE 100 was 0.9% higher at 7,323.58, while the pound was up 0.2% against the dollar at 1.2717 and 0.3% firmer versus the euro at 1.1290.

Senior officials from the US and Mexico said on Thursday that they were discussing significant changes in asylum rules and border enforcement that could stop President Trump from imposing tariffs on all Mexican imports. US Vice President Mike Pence said he was encouraged that Mexico was willing to do more to curb migration to the US, but he also said the US still plans to impose 5% tariffs on Mexico next week.

"Mexican officials continue to highlight the progress that has been made and markets are starting to believe a sustainable deal is nearing," said Oanda analyst Edward Moya.

All eyes will be on the US non-farm payrolls report, unemployment rate and average earnings at 1330 BST. The report is expected to show that 175,000 jobs were added in May, down from 263,000 in April. The unemployment rate is expected to remain steady at 3.6%, while average hourly earnings are forecast to tick higher to 0.3% month-on-month from 0.2% in April.

"In some ways this NFP figure will be a gateway for the heightened expectations of a US rate cut," said London Capital Group analyst Jasper Lawler. "The near-term direction for the markets depends on whether the gate is open or shut. Should the NFP disappoint expectations of a Fed cut potentially as soon as June or July could rise."

On home turf, the latest figures from Halifax showed that house price rose by 0.5% on the month in May, beating consensus expectations of a flat reading. The three-month average of year-over-year growth in prices rose to 5.2% from 5.0% in March, above the consensus forecast.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the data is "still misleadingly upbeat".

"It’s still impossible to reconcile Halifax’s data with any of the other measures of house price growth. Nationwide and Rightmove reported that house prices were up a mere 0.6% and 0.1%, respectively, in year-over-year terms in May, while the official measure increased by just 1.4% in March. The average value of house purchase mortgage approvals rose by a stronger 2.9% year-over-year in April, but it too is rising at a much slower rate than Halifax’s measure of house prices.

"We don’t have a strong view as to why Halifax’s data is giving a misleading steer, though we note it has been about twice as volatile as other measures in the past and it is seasonally adjusted using an antiquated methodology. Regardless, we still expect year-over-year growth in house prices to strengthen to about 1.5% by the end of this year, given that households’ real incomes still are rising at a solid rate, while the recent decline in interest rate expectations should reduce mortgage rates soon."

In equity markets, iron ore pellet producer Ferrexpo rallied as it said group first half underlying earnings were expected to increase "materially" due to higher prices and sales.

Games Workshop advanced as it said sales and profit growth extended to the end of its financial year as it reiterated guidance for annual results. Sales for the year to 2 June will be about £254m and pre-tax profit will be at least £80m, versus profit of £74.55m a year earlier.

GlaxoSmithKline was higher after saying the US Food and Drug Administration has approved two new methods for self-administering its Nucala asthma treatment.

Investment platform AJ Bell was in the red after Invesco Asset Management sold 38 million shares - a 9.3% stake - in the business for £144.4m.

In broker note action, 888 was boosted by an upgrade to 'overweight' at JPMorgan, while Ascential was up after an initiation at 'outperform' by Macquarie.

Rio Tinto was a little weaker after a downgrade to 'underweight' at Barclays and Royal Mail was knocked lower by a downgrade to 'hold' at HSBC. Pets at Home was also on the back foot after a downgrade to 'hold' at HSBC, while software company Sage was a little weaker after a downgrade to 'sell' at Deutsche Bank.

Market Movers

FTSE 100 (UKX) 7,323.58 0.88%
FTSE 250 (MCX) 19,149.42 0.44%
techMARK (TASX) 3,562.98 0.85%

FTSE 100 - Risers

Ferguson (FERG) 5,404.00p 2.78%
British American Tobacco (BATS) 2,995.00p 2.73%
Smurfit Kappa Group (SKG) 2,249.00p 2.51%
BT Group (BT.A) 206.15p 2.46%
BAE Systems (BA.) 477.80p 2.31%
WPP (WPP) 991.00p 2.08%
Spirax-Sarco Engineering (SPX) 8,605.00p 2.02%
Smith (DS) (SMDS) 329.50p 1.98%
Smiths Group (SMIN) 1,497.00p 1.94%
Standard Life Aberdeen (SLA) 276.05p 1.86%

FTSE 100 - Fallers

Marks & Spencer Group (MKS) 220.70p -1.25%
Imperial Brands (IMB) 2,055.00p -0.87%
Sage Group (SGE) 749.60p -0.74%
Morrison (Wm) Supermarkets (MRW) 194.50p -0.74%
Rio Tinto (RIO) 4,518.15p -0.45%
Berkeley Group Holdings (The) (BKG) 3,559.00p -0.45%
Barratt Developments (BDEV) 559.80p -0.39%
Next (NXT) 5,754.00p -0.38%
Associated British Foods (ABF) 2,507.00p -0.32%
International Consolidated Airlines Group SA (CDI) (IAG) 469.00p -0.28%

FTSE 250 - Risers

Kier Group (KIE) 164.92p 13.42%
Games Workshop Group (GAW) 4,748.00p 6.79%
Babcock International Group (BAB) 479.80p 4.17%
Ferrexpo (FXPO) 248.60p 4.10%
Just Group (JUST) 46.28p 3.86%
Premier Oil (PMO) 75.82p 3.10%
Spectris (SXS) 2,635.20p 3.10%
Indivior (INDV) 45.94p 3.07%
Dixons Carphone (DC.) 123.50p 2.49%
BCA Marketplace (BCA) 190.90p 2.36%

FTSE 250 - Fallers

Fisher (James) & Sons (FSJ) 1,968.00p -4.47%
Ted Baker (TED) 1,320.00p -3.51%
AJ Bell (AJB) 386.00p -3.50%
Amigo Holdings (AMGO) 261.00p -3.15%
Royal Mail (RMG) 198.00p -2.70%
Woodford Patient Capital Trust (WPCT) 62.77p -2.68%
Syncona Limited NPV (SYNC) 227.05p -2.13%
Go-Ahead Group (GOG) 2,036.92p -2.07%
Workspace Group (WKP) 867.89p -1.82%
FirstGroup (FGP) 105.10p -1.68%