London midday: Stocks pare gains as sterling shoots up on Brexit delay hopes

London stocks had flattened out by midday on Friday, erasing earlier gains as sterling shot up on hopes of a Brexit delay, as investors mulled over a raft of data releases.

The FTSE 100 was steady at 6,945.29 as the pound rose 0.6% against the dollar to 1.2820 - having briefly traded above $1.2830 for the first time since late November - and 0.4% versus the euro to 1.1127 on the back of an Evening Standard report suggesting that Brexit was likely to be delayed beyond the scheduled exit of 29 March.

However, the report was swiftly denied by Theresa May's spokeswoman Alison Donnelly.

Ranko Berich, head of market analysis at Monex Europe, said: "After the week’s commons debacles had little impact on markets, this morning’s reports of a likely delay in the UK’s exit from the EU on March 29th have given the pound enough of a boost to briefly reach fresh highs for the year.

"The core story for sterling remains the same: less Brexit is good, more Brexit is bad. The sheer amount of downside risk that’s already priced in means that even rumours of a delay or a slight tilt towards a softer Brexit will have a strongly positive effect on sterling.

"In the unlikely, but not impossible, event that May manages to get a bill through Parliament in the near future, we believe the initial relief rally will be worth at least 5% for sterling, as today’s volatility illustrates."

Stocks had kicked the session off on the front foot after a positive finish on Wall Street, after Treasury Secretary Steve Mnuchin said China’s lead trade official, Vice Premier Liu He, would "most likely" head over to the US for further trade talks later this month.

"That comment appears to have renewed hopes that the recent get-together in Beijing, though not producing any concrete progress just yet, was nevertheless a step towards an eventual trade war resolution," said Spreadex analyst Connor Campbell.

On home turf, the latest figures from the Office for National Statistics showed UK gross domestic product growth slowed towards the end of last year as factory output fell for a fifth month in a row.

Economic growth slowed to 0.3% for the three months to November, as expected, while GDP grew 0.2% month-on-month in November, better than the 0.1% forecast. GDP growth was down from the 0.4% in the three months to October, 0.6% in the period to September and the lowest in six months.

Industrial production unexpectedly fell by 0.4% month-on-month in November and was down 1.5% year on year. Economists had forecast a 0.2% increase after falling for four months in a row.

Manufacturing production was down 0.3% on the month and down 1.1% on the previous year, both much worse than expected and the sector’s worst losing run since the financial crisis.

While factory numbers were disappointing, Black Friday boosted output in the retail sector to 1.4%, while there was a 0.3% month-to-month increase in services output and 0.6% increase in construction output.

"There are two factors at work here," said Ben Brettell, senior economist at Hargreaves Lansdown. "The global economy looks to be stuttering, with the ‘Chimerica’ trade war rumbling on, and Chinese consumer spending on a downward trend. UK companies are also dealing with a significant Brexit headwind, with heightened levels of uncertainty putting business off investment and damaging consumer confidence."

Among individual shares, housebuilders were the standout gainers as Bank of America Merrill Lynch upgraded its stance on the sector to 'neutral' from 'underperform'. It double-upgraded "top picks" Persimmon and Taylor Wimpey to 'buy', and lifted Barratt Developments and Bellway to 'neutral' from 'underperform'.

"It seems at least possible, or even probable, that some sort of Brexit resolution is within sight and therefore the UK housebuilding sector may see some relief," it said.

Elsewhere, Southend airport owner Stobart gained as it teamed up with Virgin Atlantic and Cyrus Capital Partners to buy British regional airline Flybe for 1p a share, valuing the company at £2.2m.

Builders merchant Grafton rallied after saying it expects adjusted profits for 2018 to be slightly ahead of the top end of analyst expectations, while pub operator Ei ticked a touch lower as it agreed to dispose of 370 properties to Tavern Propco Limited for £348m.

Outside the FTSE 350, retailers were in focus again, with fast fashion brand Quiz tanking 30% as it issued its second profit warning in three months after a difficult Christmas period, but Moss Bros on the rise after saying it expects to make a full-year loss in line with market forecasts as deep discounting put a squeeze on margins.

Meanwhile, Debenhams tumbled as its chief executive and chairman were voted off the board after major shareholder Sports Direct engineered a coup at the embattled department store group's annual meeting.

Elsewhere, Sage was knocked lower by a cut to 'sell' at UBS, while UDG Healthcare and NMC Health were hit by a Jefferies note.

Market Movers

FTSE 100 (UKX) 6,945.29 0.03%
FTSE 250 (MCX) 18,480.39 0.24%
techMARK (TASX) 3,397.41 -0.30%

FTSE 100 - Risers

Taylor Wimpey (TW.) 156.05p 4.80%
Persimmon (PSN) 2,200.68p 4.25%
Barratt Developments (BDEV) 501.60p 2.53%
International Consolidated Airlines Group SA (CDI) (IAG) 609.40p 2.45%
Coca-Cola HBC AG (CDI) (CCH) 2,522.00p 1.73%
Rolls-Royce Holdings (RR.) 873.40p 1.58%
Land Securities Group (LAND) 834.80p 1.43%
British Land Company (BLND) 548.80p 1.40%
Aviva (AV.) 401.20p 1.34%
Centrica (CNA) 134.52p 1.30%

FTSE 100 - Fallers

NMC Health (NMC) 2,744.00p -6.35%
Melrose Industries (MRO) 169.76p -3.93%
Smurfit Kappa Group (SKG) 2,176.00p -3.03%
Kingfisher (KGF) 222.10p -2.37%
Sage Group (SGE) 606.40p -2.35%
Barclays (BARC) 156.30p -1.91%
Johnson Matthey (JMAT) 2,906.98p -1.59%
AstraZeneca (AZN) 5,830.00p -1.57%
Smith (DS) (SMDS) 332.80p -1.33%
Spirax-Sarco Engineering (SPX) 6,425.00p -1.31%

FTSE 250 - Risers

Stobart Group Ltd. (STOB) 160.81p 7.20%
Cairn Energy (CNE) 184.70p 5.24%
Hunting (HTG) 551.00p 3.86%
Dixons Carphone (DC.) 131.90p 3.86%
Inmarsat (ISAT) 406.60p 3.15%
Bellway (BWY) 2,819.00p 3.11%
Workspace Group (WKP) 870.50p 3.08%
Domino's Pizza Group (DOM) 262.00p 2.95%
Ibstock (IBST) 224.20p 2.75%
Redrow (RDW) 548.62p 2.74%

FTSE 250 - Fallers

UDG Healthcare Public Limited Company (UDG) 588.50p -6.07%
Card Factory (CARD) 163.00p -2.98%
Just Group (JUST) 94.45p -2.78%
Just Eat (JE.) 614.00p -2.60%
Halfords Group (HFD) 211.20p -2.58%
CYBG (CYBG) 183.80p -2.44%
Indivior (INDV) 122.17p -2.22%
Ted Baker (TED) 1,915.00p -2.15%
IMI (IMI) 957.00p -2.10%
Weir Group (WEIR) 1,395.00p -1.76%