London midday: Stocks off highs as pound recovers some ground

London stocks were up but off highs by midday as the pound recovered some ground on reports that Theresa May has struck a deal with Northern Ireland's Democratic Unionist Party that will allow her to form a government.

The FTSE 100 was up 0.7% to 7,498.26, while the pound was down 1.2% against the euro at 1.1413 and 1.7% versus the dollar at 1.2770, still sharply lower but easing back from the 2% losses seen earlier as May prepared to go Buckingham Palace at 1230 BST to seek permission from the Queen to form a government in partnership with the DUP.

It is still unclear whether the two parties will form a coalition or operate a "confidence and supply" arrangement that would see Unionists support a minority government on vital matters in return for some of their policies being enacted.

With around 70% of its constituents deriving their earnings from overseas, the FTSE 100 tends to benefit when sterling weakens. However, its more domestically-focused little sister, the FTSE 250, was down 0.4% to 19,671.91.

With 649 out of 650 seats declared, the Conservatives had 318 seats, while Labour had 261, meaning May - who called the snap election in a bid to strengthen her mandate ahead of the Brexit negotiations - has fallen short of the 326 seats needed to deliver a majority Tory government in the House of Commons.

Counting in Kensington has been suspended, with a third re-count necessary after the results were too close to call, but according to reports, Labour was ahead by around 30 or 40 votes when the tellers stopped counting.

Spreadex analyst Connor Campbell said: "The pound gradually pulled back from the brink this morning, though the currency still finds itself in a very bad way following the shock general election result.

"As expected, Theresa May appears to have made an agreement with the DUP, whose 10 seats in Northern Ireland would allow the Tories to just about manage a parliamentary majority. While the pound is obviously pleased that May is set to visit the Queen at midday to seek permission to form a government - therefore likely avoiding another election in a few weeks times-– the unstable nature of such a government, and what that means for the Prime Minister’s ability to negotiate with the EU, has only seen sterling erase the top layer of its losses."

With Brexit negotiations due to kick off on 19 June, EU budget commissioner Gunther Oettinger already said earlier on Friday that there would be no negotiations without a government. Speaking on Deutschlandfunk public radio, he said: "Whether the other side can even begin will have to become clear in the next hours and days, since if there’s no government - no negotiations.”

Meanwhile, when asked at a news conference whether the Article 50 negotiations should be extended, European Commission President Jean-Claude Juncker replied that before they are extended they first need to begin.

In terms of sectors, housebuilders suffered the heaviest losses, with Barratt Developments, Persimmon, Taylor Wimpey and Land Securities all in the red as analysts argued that increased political uncertainty would slow house purchases and make the sector less appealing.

UK-focused bank Royal Bank of Scotland was the standout loser, while Sky was under the cosh amid jitters over 21st Century Fox's $14bn bid to buy out the 61% of the broadcaster it doesn't already own. Analysts highlighted the fact it is now unclear who the culture minister will be on 20 June when Ofcom's report on Fox's suitability to buy Sky is due.

On the upside, international giants such as Reckitt Benckiser and Diageo advanced.

With politics firmly in focus, UK industrial and manufacturing production figures came and went with little fuss. Data from the Office for National Statistics showed industrial growth slowed in April as manufacturing activity bounced back slowly from a fall the previous month.

UK industrial production rose 0.2% month-on-month in April, the ONS said, which was short of the consensus forecast for a 0.7% rise as seen in March. Year on year, industrial production fell 0.8%, worse than the 0.3% drop expected and down from the 1.4% rise the month before.

UK manufacturing production rebounded 0.2% in April from the drop of 0.6% the previous month, though this was shy of the 0.8% improvement anticipated by economists. Manufacturing activity was flat on a year-on-year basis when a 0.7% increase was forecast after a revised previous improvement of 2.2% for March.

Market Movers

FTSE 100 (UKX) 7,498.26 0.65%
FTSE 250 (MCX) 19,671.91 -0.36%
techMARK (TASX) 3,588.78 0.26%

FTSE 100 - Risers

Fresnillo (FRES) 1,744.00p 4.74%
Randgold Resources Ltd. (RRS) 7,685.00p 2.54%
Smurfit Kappa Group (SKG) 2,216.00p 2.26%
Scottish Mortgage Inv Trust (SMT) 416.10p 1.99%
Bunzl (BNZL) 2,413.00p 1.90%
Johnson Matthey (JMAT) 3,001.00p 1.83%
Standard Chartered (STAN) 772.90p 1.83%
Croda International (CRDA) 3,964.00p 1.80%
Reckitt Benckiser Group (RB.) 7,990.00p 1.76%
Diageo (DGE) 2,325.00p 1.75%

FTSE 100 - Fallers

Royal Bank of Scotland Group (RBS) 249.80p -2.88%
Taylor Wimpey (TW.) 178.40p -2.78%
Barratt Developments (BDEV) 574.00p -2.71%
Persimmon (PSN) 2,351.00p -2.49%
Marks & Spencer Group (MKS) 358.20p -2.32%
Babcock International Group (BAB) 889.00p -2.20%
Next (NXT) 4,257.00p -2.18%
Sky (SKY) 967.50p -2.03%
Land Securities Group (LAND) 1,049.00p -1.87%
International Consolidated Airlines Group SA (CDI) (IAG) 583.00p -1.77%

FTSE 250 - Risers

Kaz Minerals (KAZ) 525.50p 5.16%
Hochschild Mining (HOC) 315.00p 4.44%
Centamin (DI) (CEY) 178.00p 3.31%
Ashmore Group (ASHM) 358.40p 2.63%
Ferrexpo (FXPO) 189.10p 2.22%
Ted Baker (TED) 2,409.00p 2.08%
NMC Health (NMC) 2,357.00p 2.03%
Weir Group (WEIR) 1,900.00p 1.99%
Genesis Emerging Markets Fund Ltd Ptg NPV (GSS) 670.00p 1.98%
Vedanta Resources (VED) 593.50p 1.98%

FTSE 250 - Fallers

OneSavings Bank (OSB) 401.10p -4.52%
Crest Nicholson Holdings (CRST) 584.50p -4.26%
Virgin Money Holdings (UK) (VM.) 280.40p -4.07%
Travis Perkins (TPK) 1,540.00p -4.05%
Daejan Holdings (DJAN) 6,285.00p -3.68%
Aldermore Group (ALD) 223.80p -3.49%
Metro Bank (MTRO) 3,701.00p -3.47%
Berkeley Group Holdings (The) (BKG) 3,098.00p -3.40%
Howden Joinery Group (HWDN) 439.30p -3.34%
Homeserve (HSV) 738.50p -2.89%