London close: Relief-rally kicks-in after China stimulus, US jobs data

The FTSE 100 ended the day 2.16% higher at 6,837.42, while the pound was up 0.77% against the dollar at 1.27326 and 0.77% firmer versus the euro at 1.1168.

News that the US and China will hold vice-ministerial level negotiations over trade in Beijing on 7-8 January helped to boost the tone in financial markets right from the start of the session. These will be the first face-to-face talk since Donald Trump and Xi Jinping met at the G-20 meeting in December and agreed a temporary truce on tariffs.

Also helping to buoy the mood, the People's Bank of China said it would be cutting the required reserve ratio for banks by 0.5 percentage point on 15 January, with a further 0.5 percentage point cut on 25 January. That came alongside data showing that China's services sector expanded at a slightly faster pace in December.

Later in the day, the Department of Labor reported a bumper 312,000 increase in US non-farm payrolls last month (consensus: 184,000), together with a pick-up in wage gains, helping - at least for the moment - to allay the worst fears around the outlook for the American economy.

More important even, speaking at a panel discussion at the American Economic Association, US central bank chairman, Jerome Powell, left the door open to a pause in the Federal Reserve's interest rate hiking campaign.

"Particularly with the muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves [...] We are always prepared to shift the stance of policy and to shift it significantly," Powell said.

Figures released earlier showed that activity in the UK services sector picked up more than expected in December but remained subdued amid worries about Brexit.

The IHS Markit/CIPS UK services PMI business activity index rose to 51.2 the 28-month low of 50.4 seen in November, beating expectations for a reading of 50.7. Despite the beat to consensus, growth conditions remained subdued across the UK services sector at the end of last year, with business activity rising at one of the slowest rates seen in the past two-and-a-half years.

The survey found that Brexit-related concerns were a key factor weighing on business-to-business spending in December, with a number of firms noting that subdued consumer demand had acted as a brake on sales.

Meanwhile, the seasonally adjusted all-sector output was up slightly from 51.0 in November at 51.6. However, the latest reading pointed to the second-slowest rate of business activity expansion since July 2016.

The index for business expectations fell to 60.2 in December from 60.6 the month before, marking the second-lowest level since 2009.

IHS Markit’s chief business economist Chris Williamson said: “The service sector typically plays a major role in driving economic growth, but is now showing worrying signs of having lost steam amid intensifying Brexit anxiety.”

Elsewhere, the latest data from the Bank of England revealed that consumer lending grew at its slowest pace in nearly four years in November.

Annual growth in unsecured consumer lending slowed to 7.1% from 7.4% the month before, the slowest increase since March 2015.

Consumers borrowed an extra £0.9bn to spend on goods and services in November, in line with the average since July, the Bank said, of which net credit card borrowing was £0.4bn. Consumer credit was higher than the £0.75bn the market expected.

Net lending to individuals dropped to £4.4bn from £5.0bn the month before, below the £4.9bn average economist estimate.

Nationwide’s latest survey 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.

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.

Brexit was also in focus ahead of the Commons vote on Theresa May’s deal due in the week starting 14 January, as the latest poll by the Economic and Social Research Council found that more than half of Conservative party members would prefer to leave the EU with no deal rather than the one being proposed by May.

The PM is due to speak to EC president Jean-Claude Juncker over the phone on Friday afternoon.

There was not 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.

Next was upgraded to 'hold' from 'sell' by Berenberg after a well-received update on Christmas trading on Thursday, while ITV slipped as Morgan Stanley cut its price target on the broadcaster to 130p from 190p.

Oil producers and service providers also provided a significant boost to the FTSE indices as crude prices picked up further, with Wood Group, Premier Oil and Tullow all in the green.

Market Movers

FTSE 100 (UKX) 6,837.42 2.16%
FTSE 250 (MCX) 17,795.88 2.05%
techMARK (TASX) 3,328.65 1.28%

FTSE 100 - Risers

Antofagasta (ANTO) 785.60p 6.45%
Schroders (SDR) 2,592.00p 6.27%
Evraz (EVR) 469.20p 6.13%
Melrose Industries (MRO) 164.65p 5.78%
Mondi (MNDI) 1,697.00p 5.77%
Glencore (GLEN) 284.20p 5.63%
Wood Group (John) (WG.) 543.60p 5.51%
Ashtead Group (AHT) 1,702.00p 5.35%
Smurfit Kappa Group (SKG) 2,194.00p 5.08%
Ferguson (FERG) 5,120.00p 5.07%

FTSE 100 - Fallers

Fresnillo (FRES) 875.20p -1.49%
BT Group (BT.A) 237.35p -1.15%
Sainsbury (J) (SBRY) 260.00p -1.14%
Tesco (TSCO) 197.40p -0.98%
Hiscox Limited (DI) (HSX) 1,526.00p -0.71%
Morrison (Wm) Supermarkets (MRW) 215.80p -0.35%
Reckitt Benckiser Group (RB.) 5,964.00p -0.02%
Centrica (CNA) 137.30p 0.00%
Diageo (DGE) 2,740.50p 0.02%
SEGRO (SGRO) 600.40p 0.23%

FTSE 250 - Risers

Indivior (INDV) 126.70p 12.72%
Premier Oil (PMO) 75.70p 9.39%
Contour Global (GLO) 184.80p 7.38%
Ferrexpo (FXPO) 200.90p 7.12%
Tullow Oil (TLW) 195.20p 6.93%
CYBG (CYBG) 190.00p 6.80%
Kaz Minerals (KAZ) 524.20p 6.26%
Petrofac Ltd. (PFC) 509.80p 5.99%
Weir Group (WEIR) 1,315.50p 5.71%
Capita (CPI) 114.15p 5.26%

FTSE 250 - Fallers

Funding Circle Holdings (FCH) 315.35p -2.50%
IP Group (IPO) 107.00p -2.19%
Amigo Holdings (AMGO) 270.30p -1.71%
Rank Group (RNK) 139.80p -1.69%
Hill & Smith Holdings (HILS) 1,143.00p -1.38%
Intu Properties (INTU) 109.05p -1.31%
PZ Cussons (PZC) 211.80p -1.21%
Acacia Mining (ACA) 200.00p -1.14%
Smithson Investment Trust (SSON) 1,010.00p -0.98%
Civitas Social Housing (CSH) 103.00p -0.96%