London close: Shares slip as John Lewis sparks retail worries
The Bank of England acted as expected and trade tensions eased but London stocks lost territory on Thursday as weakness in the retail sector combined with late gains for the pound against the dollar.
The FTSE 100 finished down 0.4% to , while the pound popped up 0.4% to 1.3102 late versus the greenback after disappointing US inflation number, while remaining flat against the euro at 1.1222.
Members of the Bank of England's monetary policy committee voted unanimously to leave interest rates unchanged at 0.75% and the asset purchase programme at £435bn, as expected. The BoE hiked the interest rate last month from 0.5%, taking it to its highest level since March 2009.
The BoE also upgraded its growth forecast, pointing to 0.5% economic growth in the third quarter, up from an August estimate of 0.4%.
In its policy statement, the MPC says that downside risks to global growth have increased "to some degree", noting the tighter financial conditions in emerging markets and the announcement of further protectionist measures in the US and China.
There were no real surprises, said Kathleen Brooks at Capital Index. "The BoE’s outlook was clouded by what it considers increased levels of Brexit uncertainty due to the political atmosphere in Westminster. This initially weighed on the pound, however, things started to change for the pound when the US CPI data was weaker than expected."
With sterling breaking through a key short-term resistance level at $1.3050, she said this could trigger a move back to $1.3200.
"Interest rate probabilities are also worth watching. Expectations for a February rate hike from the BOE actually rose on the back of today’s events, with the market now pricing in a 25% chance of a hike to 1% in February, up from a 22% chance last week. This may seem like a small increase, but if we see further positive economic data from the UK then expectations could increase further, adding more support to the GBP recovery."
The European Central Bank also announced its latest policy decision shortly after, also standing pat on policy and continuing to signal that interest rates would remain steady at least through the summer of 2019.
Said Brooks: "The ECB may have revised down its growth forecasts for 2018 and 2019; however, ECB President Mario Draghi did his best to downplay the revision and the threats posed to EU growth from turmoil in Turkey and a no-deal scenario in Brexit negotiations with the UK."
Trade relations remained in focus after US officials invited China to new trade talks, which the Chinese foreign ministry welcomed.
Lukman Otunuga, research analyst at FXTM, said this prompted a collective sigh of relief across financial markets. "While this is not the first time there has been optimism around negotiations between Washington and Beijing, which have later escalated to further trade tensions, investors will want to remain optimistic that an agreement over this long-standing issue will eventually be made. The talks are overall a positive step that both sides are willing to diffuse tensions between the two largest economies in the world."
In corporate news, retailers were in focus, with Marks & Spencer in the red after John Lewis said first-half profits tumbled nearly 99%, with gross margins squeezed by discounting to keep up with competitors as the retailer warned that it continues to expect profit for this year to be “substantially lower” than the last. Next lost some ground, with almost all the retail sector in the red.
Debenhams fell sharply after Sports Direct clarified overnight that it does not currently intend to bid for the struggling department store chain, in which it has a 29% stake. Sports Direct shares were also weaker.
Meanwhile, supermarket group Morrisons fell even as it more than doubled its interim dividend after like-for-like sales in the first half grew at the fastest rate since 2009. Group LFL sales excluding-fuel were up 4.9% in the six months 5 August after an acceleration to 6.3% in the second quarter from the 3.6% in the first.
Neil Wilson, chief market analyst at Markets.com, said: "The question now is where can Morrisons go from here? There remains some intense pressure from discounters, whilst Tesco has lately announced its own discount chain aimed at countering the German upstarts. Further pressure on margins seems inevitable. Finding new growth avenues like the Amazon tie-up and wholesale business are important but the key remains the core product offering, which Morrisons seems to be pitching just right at the moment."
GVC Holdings saw earlier gains flatten off after it posted a jump in half-year pre-tax profit as revenue rose amid strong momentum in the online and European retail segments and thanks to a boost from the World Cup, as it identified further cost savings from its Ladbrokes Coral acquisition.
On the upside, miners advanced as metals prices rose, with Glencore, Rio Tinto, Antofagasta and Anglo American all higher.
RBS gained on news that it could use £4bn of surplus capital to pay a special one-off dividend to shareholders. Chairman Howard Davies told The Times in an interview that he would prefer to use the spare cash to buy shares back from the government but that the special dividend is an option.
Legal & General was in the green as it completed a £4.4bn buy-in for the British Airways pension scheme, ‘Airways Pension Scheme’, covering nearly 22,000 pensioners.
Drinks bottler Coca-Cola HBC was higher as Coke signed a deal with the English Premier League – its biggest sponsorship agreement in the UK – as it looks to promote its brands. It also comes a day after Coca-Cola European Partners lifted its forecast range for 2018 earnings per share growth to 7-8% from a prior 5-6%.
In broker note action, Kaz Minerals was upgraded to ‘buy’ at HSBC, while Antofagasta was lifted to ‘hold’.
Aviva was started at ‘add’ by Investec, while Diageo was added to Citi’s European focus list and N Brown was downgraded to ‘hold’ at Stifel.
Ex-dividends took 0.25 points off the FTSE 100 and 11 points off the FTSE 250, with Assura, BBA Aviation, BCA Marketplace, Bakkavor, Cineworld, Computacenter, Derwent, Equiniti, Gocompare, Inmarsat, and Melrose Industries all in the frame.
FTSE 100 - Risers
Antofagasta (ANTO) 772.00p 1.74%
Anglo American (AAL) 1,510.60p 1.66%
Glencore (GLEN) 299.50p 1.49%
Paddy Power Betfair (PPB) 6,980.00p 1.45%
Coca-Cola HBC AG (CDI) (CCH) 2,598.00p 1.25%
Legal & General Group (LGEN) 253.60p 1.08%
Royal Bank of Scotland Group (RBS) 247.40p 1.06%
Royal Mail (RMG) 482.40p 1.05%
Vodafone Group (VOD) 168.28p 1.02%
International Consolidated Airlines Group SA (CDI) (IAG) 680.40p 0.92%
FTSE 100 - Fallers
NMC Health (NMC) 3,596.00p -2.92%
Imperial Brands (IMB) 2,625.50p -2.45%
SSE (SSE) 1,120.00p -2.35%
WPP (WPP) 1,125.00p -2.30%
Ashtead Group (AHT) 2,334.00p -2.22%
Morrison (Wm) Supermarkets (MRW) 260.25p -2.09%
Marks & Spencer Group (MKS) 287.20p -2.08%
Just Eat (JE.) 704.40p -2.03%
Pearson (PSON) 844.20p -2.02%
Relx plc (REL) 1,602.00p -1.90%
FTSE 250 - Risers
Coats Group (COA) 85.60p 3.76%
Centamin (DI) (CEY) 92.64p 2.46%
Lancashire Holdings Limited (LRE) 588.50p 2.08%
Grainger (GRI) 304.40p 1.87%
Nex Group (NXG) 1,040.00p 1.76%
Capital & Counties Properties (CAPC) 252.70p 1.73%
Games Workshop Group (GAW) 3,655.00p 1.53%
RPC Group (RPC) 832.00p 1.41%
Millennium & Copthorne Hotels (MLC) 511.00p 1.39%
Greencore Group (GNC) 194.30p 1.30%
FTSE 250 - Fallers
Energean Oil & Gas (ENOG) 552.00p -5.64%
Cairn Energy (CNE) 212.20p -4.93%
Fisher (James) & Sons (FSJ) 1,772.00p -4.63%
Tate & Lyle (TATE) 638.20p -4.38%
Euromoney Institutional Investor (ERM) 1,292.00p -4.30%
JD Sports Fashion (JD.) 500.00p -4.10%
IP Group (IPO) 120.40p -3.83%
Rathbone Brothers (RAT) 2,436.00p -3.79%
BCA Marketplace (BCA) 211.00p -3.65%
Stobart Group Ltd. (STOB) 237.50p -3.46%