London close: FTSE upholds rally on prospect of BoE stimulus

The rally, which started on Tuesday, held up through the rest of the week to the surprise of economists who had expected the sell-off to resume at some point following last week’s shock EU referendum result. Britain’s vote to leave the EU last Friday had sent stocks tumbling for the two days of trading that followed.

“The chance to pick up choice shares on the cheap was evidently irresistible,” said IG senior market analyst Chris Beauchamp.

“Whether the market can sustain this ebullient rally into next week is a different matter entirely. Chart devotees will point out that the FTSE 100 has finally broken the downtrend that has ruled since April of last year – will the robustness in the face of uncertainty be enough to drive markets higher once again?”

He added that those hoping for a respite from Brexit next week are “likely to be disappointed (it was a naive hope anyway)”.

Bank of England governor Mark Carney gave the market a boost by suggesting late on Thursday that the central bank will need to cut interest rates to cushion the blow of Brexit in coming months.

Nomura’s UK economists expect a 25 basis points (bps) rate cut from the current 0.50% in August, followed by another 25 bps cut in November. “The MPC may ultimately conclude it can go slightly negative, or it may prefer to keep a marginally positive rate.”

Meanwhile, in economic data, the UK manufacturing sector saw a modest improvement in June, rising to a five-month high. The Markit/CIPS UK manufacturing purchasing managers’ index increased to 52.1 from a revised reading of 50.4 in May. Economists had been expecting a reading of 50.2.

“While the Bank of England remains poised to act if needed and the UK’s trading relationships are unchanged during the two-year negotiation period, there’s a clear risk that ongoing uncertainty will have at least some short term impact on manufacturing during the coming quarters,” said Rob Dobson, senior economist at survey compilers Markit.

“The big question is whether any negative impact from uncertainty can be partly offset by a boost to exports resulting from the fall in the pound.”

In the US, the seasonally adjusted final Markit US manufacturing PMI registered 51.3 in June, up from 50.7 in May. June’s final reading marked a downward revision from a previous estimate of 51.4 but was better than the 51.2 that analysts had been expecting.

The Institute for Supply Management (ISM) said its index of national factory activity rose to 53.2 in June from 51.3 the month before. Analysts had pencilled in no change to the reading.

US construction spending fell 0.8% in May after a downwardly revised 2.0% drop in April, the Commerce Department said, missing forecasts for a 0.7% increase.

In Asia, China’s official manufacturing PMI fell slightly to 50.0 in June from 50.1 in May, as expected. Caixin’s manufacturing PMI decreased to 48.6 in June from 49.2 the previous month, missing forecasts for a reading of 49.2.

Japan’s deflation eased in May with the consumer price index down 0.4% year-on-year compared to a 0.3% fall the previous month. Analysts had expected it to worsen to a 0.5% decline.

On the corporate front, housebuilders were among the biggest risers on the FTSE with Persimmon, Taylor Wimpey and Berkeley Group Holdings in the black on the prospect of lower interest rates attracting buyers.

Royal Bank of Scotland dropped after Morgan Stanley cut its rating on the stock to ‘equal weight’ from 'overweight’ and reduced its earnings forecast by a third for 2017, and by a quarter for 2018.

BHP Billiton was in the red as its plans to settle claims over the 2015 Samarco mine disaster suffered a blow on Friday when a Brazilian court reinstated a AUD$8bn public civil claim.

WPP jumped after the advertising giant said it has agreed to invest in Woven Digital, a US media company aimed at millennials.

Randgold Resources and Fresnillo gained as gold and metal prices jumped.

Market Movers

FTSE 100 (UKX) 6,581.28 1.18%
FTSE 250 (MCX) 16,468.27 1.21%
techMARK (TASX) 3,232.07 0.49%

FTSE 100 - Risers

Fresnillo (FRES) 1,760.00p 7.06%
Persimmon (PSN) 1,544.00p 6.70%
TUI AG Reg Shs (DI) (TUI) 904.00p 6.17%
Johnson Matthey (JMAT) 2,957.00p 5.57%
Taylor Wimpey (TW.) 139.30p 5.29%
Berkeley Group Holdings (The) (BKG) 2,654.00p 5.19%
WPP (WPP) 1,630.00p 5.03%
Paddy Power Betfair (PPB) 8,250.00p 4.50%
St James's Place (STJ) 820.00p 4.46%
Provident Financial (PFG) 2,402.00p 4.43%

FTSE 100 - Fallers

Sage Group (SGE) 626.00p -3.02%
Travis Perkins (TPK) 1,451.00p -1.56%
Capita (CPI) 950.00p -1.25%
Royal Bank of Scotland Group (RBS) 169.70p -1.11%
Hammerson (HMSO) 532.50p -1.02%
United Utilities Group (UU.) 1,030.00p -0.48%
Informa (INF) 726.00p -0.34%
London Stock Exchange Group (LSE) 2,523.00p -0.32%
BHP Billiton (BLT) 940.00p -0.30%
GlaxoSmithKline (GSK) 1,600.00p -0.28%

FTSE 250 - Risers

Crest Nicholson Holdings (CRST) 395.00p 10.96%
Hochschild Mining (HOC) 195.00p 8.33%
Essentra (ESNT) 552.50p 7.70%
Centamin (DI) (CEY) 141.30p 7.13%
TalkTalk Telecom Group (TALK) 233.50p 6.52%
Smurfit Kappa Group (SKG) 1,757.00p 6.42%
Dairy Crest Group (DCG) 571.00p 6.23%
Redrow (RDW) 333.90p 6.20%
Genus (GNS) 1,659.00p 6.01%
Britvic (BVIC) 619.50p 5.90%

FTSE 250 - Fallers

Stagecoach Group (SGC) 213.70p -7.53%
Big Yellow Group (BYG) 751.50p -3.78%
Polypipe Group (PLP) 251.00p -3.61%
Daejan Holdings (DJAN) 4,876.00p -3.35%
Ocado Group (OCDO) 224.00p -2.90%
Restaurant Group (RTN) 279.60p -2.78%
Metro Bank (MTRO) 1,758.00p -2.77%
Sports Direct International (SPD) 310.80p -2.72%
BTG (BTG) 705.50p -2.29%
Zoopla Property Group (WI) (ZPLA) 260.30p -2.14%