London open: Stocks rise amid trade hopes as investors eye payrolls

London stocks rose in early trade on Friday amid renewed optimism about Sino-US trade relations and following encouraging Chinese services data, as investors eyed the release of the latest US non-farm payrolls report.

At 0830 GMT, the FTSE 100 was 0.8% higher at 6,746.04, while the pound was up 0.3% against the dollar at 1.2662 and 0.1% firmer versus the euro at 1.1096.

Sentiment got a lift from news that the US and China will hold vice-ministerial level negotiations over trade in Beijing on 7-8 January. These will be the first face-to-face talks since Donald Trump and Xi Jinping met at the G-20 meeting in December and agreed a temporary truce on tariffs.

Also helping to underpin sentiment was data showing that China's service sector expanded at a slightly faster pace in December. The Caixin China services purchasing managers' index ticked up 53.9 in December from 53.8 in November, beating expectations for a reading of 52.9.

Neil Wilson, chief market analyst at Markets.com, highlighted the recent run of bad news spooking markets, including China’s Caixin manufacturing PMI, Apple’s profit warning and weak US ISM manufacturing data.

"All these suggest that the Sino-US trade war is having a greater effect on confidence and activity on both sides of the Pacific than we had maybe thought likely.

"However, we see some light, albeit dim. First, there are signs of progress in terms of the trade spat. Trade talks take place next week and we may start to see that the effects on both the stock markets and on the real economies of the respective countries will focus their attention. That may just be an optimist’s view of the world - the US is still in the stronger position and will not easily give it up.

"Two, markets are starting to price in a rate cut this year rather than another hike. The market has underestimated the Fed in the past on hikes, notably in 2017, but for most of the last decade it has been the market that has got things more accurate than the Fed. The sharp decline in US yields is not itself a ‘good thing’, not least as we see points of inversion along the curve, but if the Fed is seen being easier this year it could offer succour to equity markets."

The release of the US non-farm payrolls report, unemployment rate and average hourly earnings at 1330 GMT will be the highlight of the day on the macro calendar.

The jobs report is expected to show that 177,000 jobs were added in the US in December, while the unemployment rate is expected to have held steady at 3.7%. Average earnings on a yearly basis are forecast to have eased to 3% from 3.1%, but on a monthly basis they are expected to be 0.3%, up from 0.2%.

On the UK data front, the Bank of England's net lending, consumer credit, mortgage approvals and IHS Markit’s services PMI survey are due at 0930 GMT.

Figures out earlier from Nationwide showed that house prices fell last month in their steepest monthly drop for over seven years and with annual growth the slowest in almost five years.

Home prices in December dropped 0.7% compared to the month before - the biggest month-on-month tumble since August 2011.

Compared to the year before, prices in December were up 0.5%, which was a significant slowing from the 1.9% growth in November and in fact the slowest annual growth since February 2013. The average forecast had been for growth of 1.5%.

For the whole of 2018, house price growth slowed to 0.5% from 2.6% in 2017.

The Nationwide survey is in line with other housing surveys, which have shown a sharp fall in buyer demand towards the end of last year, with other wider consumer surveys showing deteriorating confidence.

"Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchases, have remained broadly stable in recent months, but forward-looking indicators had suggested some softening was likely," said Robert Gardner, Nationwide's chief economist.

He also noted that the number of properties coming onto the market also slowed though this "doesn’t appear to have been enough to prevent a modest shift in the balance of demand and supply in favour of buyers".

"It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs," he added.

Nationwide expects UK house prices to rise at a low single-digit pace in 2019 as long as the economy continues to grow at a modest pace, with unemployment and interest rates remaining close to current levels.

Samuel Tombs at Pantheon Macroeconomics agreed that a sustained period of falling house prices is unlikely, with unemployment at a 43-year low and business surveys pointing to steady growth in employment over the coming months.

If the government agrees a Brexit deal, however, that would give the Bank of England the green light to begin a "proper tightening cycle", which would suggest growth in house prices is likely to remain slower than incomes, around 2% this year he predicts.

There wasn’t a whole lot happening on the corporate front, but Premier Inn owner Whitbread rallied after an upgrade to ‘overweight’ by Barclays, while Sainsbury’s was hit by a downgrade to ‘reduce’ at HSBC.

Oil producers and service providers were providing a boost to the FTSE indices as crude prices picked up further. A barrel of Brent was up 1.6% to $56.85, while WTI was costing 1.7% more at $47.90.

Market Movers

FTSE 100 (UKX) 6,746.04 0.80%
FTSE 250 (MCX) 17,542.13 0.59%
techMARK (TASX) 3,289.23 0.08%

FTSE 100 - Risers

Wood Group (John) (WG.) 534.20p 3.69%
Mondi (MNDI) 1,644.00p 2.46%
International Consolidated Airlines Group SA (CDI) (IAG) 595.80p 2.44%
Standard Chartered (STAN) 600.60p 2.37%
Glencore (GLEN) 274.65p 2.08%
Antofagasta (ANTO) 752.40p 1.95%
BP (BP.) 518.60p 1.95%
Prudential (PRU) 1,365.50p 1.90%
Standard Life Aberdeen (SLA) 256.70p 1.87%
Schroders (SDR) 2,484.00p 1.85%

FTSE 100 - Fallers

NMC Health (NMC) 2,554.00p -1.92%
Sainsbury (J) (SBRY) 258.70p -1.63%
Smurfit Kappa Group (SKG) 2,064.00p -1.15%
Diageo (DGE) 2,711.50p -1.04%
AstraZeneca (AZN) 5,964.00p -0.77%
GlaxoSmithKline (GSK) 1,498.00p -0.60%
Carnival (CCL) 3,710.00p -0.56%
Morrison (Wm) Supermarkets (MRW) 215.65p -0.42%
Bunzl (BNZL) 2,307.00p -0.35%
Unilever (ULVR) 4,118.00p -0.08%

FTSE 250 - Risers

Tullow Oil (TLW) 191.05p 4.66%
Quilter (QLT) 122.12p 4.25%
Premier Oil (PMO) 72.06p 4.14%
Greene King (GNK) 550.80p 2.80%
Hunting (HTG) 484.60p 2.76%
Weir Group (WEIR) 1,276.00p 2.53%
Kaz Minerals (KAZ) 505.40p 2.45%
Cairn Energy (CNE) 156.60p 2.35%
William Hill (WMH) 161.65p 2.25%
Bovis Homes Group (BVS) 862.40p 2.23%

FTSE 250 - Fallers

Vivo Energy (VVO) 120.10p -4.77%
Energean Oil & Gas (ENOG) 633.06p -3.28%
John Laing Group (JLG) 325.00p -1.75%
Amigo Holdings (AMGO) 270.50p -1.64%
St. Modwen Properties (SMP) 400.75p -1.63%
McCarthy & Stone (MCS) 130.90p -1.58%
Diploma (DPLM) 1,137.94p -1.48%
Morgan Advanced Materials (MGAM) 250.60p -1.34%
The Renewables Infrastructure Group Limited (TRIG) 112.00p -1.23%
Coats Group (COA) 81.30p -1.22%