London close: Stocks struggle to find direction on lack of drivers

Equities struggled to find direction as there were few data releases apart from UK public finances, Markit’s Household Finance Index and Japanese trade data.

UK’s headline public borrowing declined from an upwardly revised £11.6bn to £9.4bn in September, compared with analysts’ expectations for a £10.1bn reading, according to the Office for National Statistics. Public borrowing was driven by record revenues for the month from income, VAT and corporation tax.

“The Chancellor will obviously be hoping that the economy can kick on and is not hampered by global growth being held back by a marked slowdown in China and emerging markets,” said Howard Archer, chief UK and European economist at IHS Global Insight.

The Household Finance Index survey by Markit showed less British households believed the Bank of England will raise interest rates in the next six months.

It revealed 34% of households polled in October expect the central bank will increase rates within six months, compared to 42% in September and 48% in August.

BoE and PBoC reach deal

Meanwhile, the BoE and the People’s Bank of China have agreed to renew an existing reciprocal sterling/renminbi currency swap line for another three years.

In an announcement during a state visit to Britain by Chinese President Xi Jinping, the BoE said the maximum value of the swap line will be raised to 350bn renminbi.

The BoE also announced separately that Britain’s smaller lenders and British units of foreign investment banks will avoid the central bank’s annual stress tests on their ability to withstand a financial crisis. Major lenders will be the focus of the tests as they account for 80% of lending to Britons, the BoE said.

The Bank’s governor Mark Carney is due to speak later this evening on the analysis of banks but has told MPs it will be a “bit of a yawner”.

In Japan, the trade deficit narrowed in September to 114.5bn yen from 569.4bn yen but exports fell short of expectations as demand from China waned. Exports rose 0.6% to 6.42trn yen while imports fell 11% to 6.53trn yen.

“No surprise here, in light of economic worries about China and Asia,” said Mickey Levy, Berenberg’s chief economist of the US, Americas and Asia. “Decelerating exports are a drag on Japan’s economy, which has been struggling to grow since spring 2014 when domestic demand was sidetracked by its misguided VAT hike.”

Among companies, Pearson tumbled after reporting a 4% drop in third quarter underlying sales and reducing its earnings guidance range for the full year by 5p to 70p-75p.

Home Retail slumped as it posted a 47% plunge in pre-tax profits at its Argos stores and warned that group full-year profits will fall short of expectations due to trading uncertainty caused by Black Friday.

ARM Holdings surged after posting a jump in third-quarter pre-tax profit as revenue grew on the back of premium chip pricing and the broadening adoption of its technology.

Reckitt Benckiser Group rallied after lifting its full-year like-for-like sales growth estimate to 5% from a previous range of between 4% and 5% as it posted better-than-expected third-quarter revenue.

Smiths Group got a boost after Citigroup raised the stock to ‘buy’ from ‘neutral’ and lifted the price target to 1,200p from 1,050p to reflect an improved pension position and stability in the medical and detection businesses .

Sky was higher as it reported a strong first quarter with new paid-for subscription products boosting the company’s revenue.

Merlin Entertainments was also on the front foot after announcing a joint venture with state-backed China Media Capital to develop a Legoland Park in Shanghai, among other attractions in China.

Fidessa gained as it revealed it expects to announce a further special dividend when it publishes its full year results in February.