London close: US tax cut delays weigh on stocks
Shares ended lower amid ongoing delays to the passage of tax cuts in the US Congress even as investors mulled over the latest better-than-expected data on manufacturing, industrial production and construction.
The FTSE 100 closed down by 0.68% at 7,432.99, as the pound nudged up 0.42% against the dollar to 1.3202.
Investors were focusing on the fact that the Senate Finance Committee's version of the draft tax bill, unveiled on Thursday, included a proposal to defer a cut in corporate tax to 20% until 2019, rather than next year as suggested by the House.
"Some differences – like a delay in cutting the corporate tax rate – aren't likely to derail tax legislation. Others, like repeal of state and local tax deductions, will be harder to resolve. This week's election results increase the urgency for Republicans to pass a package of tax cuts, and we still assign odds of about 60% to legislation being enacted," said Nancy Vanden Houten at Oxford Economics.
For his part, Jim Reid at Deutsche Bank chimed in, saying: "Looking ahead, the two versions of the tax bill will be further debated, negotiated and then somehow reconciled before final voting, which was expected to be before Thanksgivings (23 November). The market is having a lot of doubts about this timetable."
Official data showed UK industrial production is increasing more than expected, with manufacturing activity continues to grow but the construction sector entering a technical recession.
Industrial production rose by 0.7% month-on-month in September, the Office for National Statistics revealed, up from 0.4% a month earlier and above the consensus forecast of 0.3%.
Production for the third quarter was also now estimated to have increased by 1.1% quarter-on-quarter, up from 1.0% as September’s production was revised up from the 0.3% expansion pencilled in by the ONS in its preliminary estimate of GDP.
This, the sixth monthly increase in a row, was thanks to a 0.7% increase in manufacturing production, similarly beating a 0.3% consensus and up from 0.4% last time.
A 2.2% rebound in mining and quarrying output, following a two month lull, also contributed, offsetting flat output in the energy supply sector and a 0.1% fall in water.
Meanwhile, UK construction output slumped 1.6% in September, way worse that the 0.3% expected after an August that was revised up to 0.8% growth, and larger than the 1.0% drop the ONS had initially pencilled in its quarterly estimate.
In trade data, export volumes fell by 1.8% on the quarter, compared with a 1.9% quarterly rise in imports.
Chris Williamson, chief business economist at IHS Markit, said official data was now confirming the UK was a multi-speed economy, with manufacturing enjoying strong growth and construction in the doldrums, entering a new technical recession.
"It's encouraging to see sectors such as machinery and equipment recording strong growth in the third quarter, where output was up 3.0%, as this is a good indicator of rising business investment. It remains unclear, however, as to how much of this was exported or intended for domestic customers," he said.
In corporate news, EasyJet flew higher after the budget carrier announced the appointment of Johan Lundgren as its new chief executive, replacing Carolyn McCall, whose departure was announced back in July.
Shares of Vedanta Resources fell as it reported revenue growth of 39% year-on-year in its first half to $6.8bn, while EBITDA was up 37% to $1.7bn.
Galliford Try was on the front foot after the company said its council partnerships arm has benefited from "increased certainty" following recent government announcements and has a record order book, while housebuilding sales rates and the construction order book have remained unchanged since the year end.
Plumbing and heating products distributor Ferguson – formerly Wolseley – was lower after it agreed to sell its Nordics building materials distribution business, Stark Group, to an affiliate of private equity firm Lone Star Funds for €1.03bn on a debt-free and cash-free basis.
On the downside, retailers AB Foods, Marks & Spencer and Kingfisher retreated after the BOD's High Street Sales Tracker data showed UK retailers had their worst October for high street sales in a decade, with an unusually warm autumn blamed for putting the mockers on sales of coats and other seasonal wear.
Student accommodation developer and manager Unite Group dipped after exchanging contracts to acquire a development site in Leeds on a subject-to-planning basis.
Ultra Electronics was at the bottom of the pile on the second-tier index after saying that a decision from the US Department of Justice about its proposed acquisition of NYSE-listed Sparton is now expected at the end of March 2018. Ultra Electronics was also cut to 'sell' from 'hold' at Berenberg on Friday.
Capita ended higher after it agreed with the Financial Conduct Authority to pay up to £66m to investors who suffered losses due to a high-risk investment scheme known as the Connaught Scheme.
Shares in luxury fashion house Burberry were under the cosh again after a downgrade to ‘underperform’ at Bernstein, while
Serco was under pressure after a downgrade to ‘sell’ at Liberum Capital.
Bunzl was weaker as Morgan Stanley recommended switching to Rexel to benefit from the unwinding of Bunzl's premium.
FTSE 100 - Risers
Sainsbury (J) (SBRY) 232.20p 1.31%
Barratt Developments (BDEV) 620.00p 1.31%
Merlin Entertainments (MERL) 383.00p 1.16%
Imperial Brands (IMB) 3,181.50p 0.87%
Convatec Group (CTEC) 190.40p 0.74%
Berkeley Group Holdings (The) (BKG) 3,613.00p 0.70%
WPP (WPP) 1,304.00p 0.69%
easyJet (EZJ) 1,278.00p 0.63%
Standard Life Aberdeen (SLA) 415.60p 0.63%
Taylor Wimpey (TW.) 192.90p 0.63%
FTSE 100 - Fallers
Bunzl (BNZL) 2,157.00p -6.54%
SSE (SSE) 1,360.00p -2.44%
Burberry Group (BRBY) 1,746.00p -2.29%
GlaxoSmithKline (GSK) 1,318.00p -2.12%
Vodafone Group (VOD) 217.65p -1.87%
AstraZeneca (AZN) 4,870.00p -1.85%
NMC Health (NMC) 2,918.00p -1.85%
Marks & Spencer Group (MKS) 319.20p -1.85%
Fresnillo (FRES) 1,301.00p -1.66%
Carnival (CCL) 4,868.00p -1.66%
FTSE 250 - Risers
Halfords Group (HFD) 334.30p 7.56%
Virgin Money Holdings (UK) (VM.) 297.00p 4.54%
Alfa Financial Software Holdings (ALFA) 494.50p 3.02%
Mitchells & Butlers (MAB) 267.90p 2.45%
Greggs (GRG) 1,325.00p 2.32%
FirstGroup (FGP) 111.60p 2.20%
Ferrexpo (FXPO) 259.50p 2.17%
Diploma (DPLM) 1,059.00p 2.12%
Rathbone Brothers (RAT) 2,515.00p 1.86%
Supergroup (SGP) 1,874.00p 1.79%
FTSE 250 - Fallers
Ultra Electronics Holdings (ULE) 1,530.00p -10.89%
Serco Group (SRP) 107.60p -4.44%
Petrofac Ltd. (PFC) 423.30p -3.82%
QinetiQ Group (QQ.) 228.80p -3.30%
Cobham (COB) 129.30p -3.29%
Intu Properties (INTU) 205.00p -3.16%
Telecom Plus (TEP) 1,236.00p -3.06%
Investec (INVP) 504.50p -2.61%
Ibstock (IBST) 240.50p -2.32%
Sophos Group (SOPH) 585.50p -2.25%