London midday: Stocks pare gains as European indices drop on Italy woes

London stocks had pared gains by midday on Tuesday as their European counterparts retreated, but miners were strong and Galliford Try gained ground after rejecting a bid from Bovis Homes.

The FTSE 100 was steady at 7,279.78, giving up earlier small gains as the main European indices fell amid concerns about Italy's budget deficit.

Stocks had kicked off in the green, with sentiment underpinned by hopes of a trade deal between the US and Japan after US President Trump said he was keen to rebalance the trade relationship between the two countries. However, worries about Italy's debt soon took their toll, with Italian government bond yields rising amid fear of a political fight between Rome and Brussels.

CMC Markets analyst David Madden said: "The EU has warned the Italian government they could be fined up to €4Bn for failing to curb their debt levels, and Italy’s joint deputy prime minister, Matteo Salvini, declared he will use ‘all his energies’ to fight the EU’s rules.

"Mr Salvini is feeling emboldened by his party’s success at the weekend, and he is determined to run a budget deficit in order to try and keep the Italian economy out of recession."

In currency markets, sterling was down 0.1% against the dollar at 1.2669 and flat versus the euro at 1.1324, trading near the four-month lows struck at the end of last week.

Spreadex analyst Connor Campbell said: "The pound seems desperate to wrap up an utterly exhausting May in the quietest way it can, despite the political whirlwind either side of the weekend - a whirlwind that is going to stretch well into June as the Tories try and pick a new leader."

Investors were digesting the latest data from UK Finance, which showed mortgage approvals rose to their highest level in April since February 2017.

Mortgage approvals increased to 42,989 from 40,564 in March, coming in well above consensus expectations for 39,500.

Meanwhile, consumer lending pushed up 3.8% on the year in April, slowing down a touch from March's 4.1% growth.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the mortgage approvals figures provide more evidence that households have not been fazed by the fraught political situation.

"Granted, the UK Finance measure only relates to loans by seven high street banking groups accounting for two-thirds of the overall market. The official measure of approvals fell to a 15-month low in March, despite a marginal rise in the UK Finance measure. In addition, the new buyer enquiries balance of the RICS Residential Market Survey still points to rapidly falling demand.

"Nonetheless, we doubt that the main banks are gaining market share so rapidly that the UK Finance data are completely misleading about overall market trends, while the RICS survey has cried wolf for several months now."

In equity markets, miners were the standout gainers as iron ore prices rose, with Rio Tinto, Antofagasta and BHP all trading up.

In individual company news, NMC Health was the top performer after it upgraded its underlying guidance for this year to reflect the impact of a healthcare joint venture in Saudi Arabia.

Housebuilder Galliford Try was on the rise after saying it had rejected a bid from rival Bovis Homes as the offer was not in the interests of all shareholders. Bovis wanted to buy Galliford’s Linden Homes and Partnerships & Regeneration arm in exchange for new Bovis shares.

FTSE 250 lender Amigo Holdings was on the front foot as it posted a 38.3% jump in full-year adjusted profit after tax to £100.1m as customer numbers grew 23.1% to 224,000.

Aviva advanced following a Financial Times report that the company is preparing to outline a big shake-up of its UK business next week, which could involve splitting itself into two divisions: life insurance and non-life insurance.

Marks & Spencer was among the risers, having dropped sharply last week on the back of news of a discounted rights issue and a dividend cut.

David Cheetham, chief market analyst at XTB, said that despite the strong share price performance on Tuesday, a look back at prior performance makes for "pretty grim viewing", with a six-month decline in the stock price of almost 20% and a near-40% drop seen in the past couple of years.

He said "a litany of mistakes" was to blame for this poor performance and while a demotion from the FTSE 100 in the upcoming quarterly reshuffle wouldn’t materially impact business operations, "it would likely do more damage to its weary investors and their holdings".

On the downside, doorstep lender Provident Financial slipped after it published a letter from one of its shareholders - M&G Investments - saying it will not back the takeover offer from smaller rival Non-Standard Finance.

Market Movers

FTSE 100 (UKX) 7,279.78 0.03%
FTSE 250 (MCX) 19,144.48 0.09%
techMARK (TASX) 3,521.91 -0.21%

FTSE 100 - Risers

NMC Health (NMC) 2,537.00p 4.06%
Rio Tinto (RIO) 4,791.50p 3.22%
Antofagasta (ANTO) 820.40p 2.29%
Fresnillo (FRES) 743.20p 2.26%
Marks & Spencer Group (MKS) 251.10p 1.95%
BHP Group (BHP) 1,834.00p 1.89%
Melrose Industries (MRO) 172.20p 1.80%
Kingfisher (KGF) 217.30p 1.78%
Johnson Matthey (JMAT) 3,182.00p 1.66%
Next (NXT) 5,878.00p 1.66%

FTSE 100 - Fallers

British American Tobacco (BATS) 2,927.00p -1.93%
Smurfit Kappa Group (SKG) 2,216.00p -1.77%
AstraZeneca (AZN) 6,004.00p -1.40%
SEGRO (SGRO) 693.60p -1.39%
GlaxoSmithKline (GSK) 1,561.20p -1.31%
Lloyds Banking Group (LLOY) 57.76p -1.30%
Hikma Pharmaceuticals (HIK) 1,733.00p -1.23%
Imperial Brands (IMB) 2,026.00p -1.12%
British Land Company (BLND) 529.00p -1.01%
Auto Trader Group (AUTO) 591.40p -1.00%

FTSE 250 - Risers

Ferrexpo (FXPO) 233.84p 5.38%
Metro Bank (MTRO) 789.50p 4.99%
Premier Oil (PMO) 88.36p 4.79%
Just Group (JUST) 60.55p 4.31%
Amigo Holdings (AMGO) 223.98p 4.18%
B&M European Value Retail S.A. (DI) (BME) 361.10p 3.91%
Galliford Try (GFRD) 558.50p 3.71%
Aston Martin Lagonda Global Holdings (AML) 874.64p 3.67%
Stobart Group Ltd. (STOB) 110.80p 3.55%
Petrofac Ltd. (PFC) 422.34p 3.34%

FTSE 250 - Fallers

Intu Properties (INTU) 89.76p -4.51%
Acacia Mining (ACA) 154.50p -4.04%
Cobham (COB) 105.85p -3.73%
Saga (SAGA) 47.84p -3.35%
Quilter (QLT) 130.88p -3.21%
Funding Circle Holdings (FCH) 248.00p -3.12%
Vivo Energy (VVO) 108.08p -2.98%
Investec (INVP) 457.40p -2.78%
CYBG (CYBG) 182.60p -2.72%
FirstGroup (FGP) 107.40p -2.45%