London midday: Stocks drop as pound rallies further on wage data
London stocks had extended losses by midday on Tuesday as the pound rallied further on the back of solid pay growth figures.
The FTSE 100 was down 0.3% to 7,010.32, while the pound added to earlier gains, trading up 0.6% against the dollar and the euro at 1.3224 and 1.1420, respectively.
Data released mid-morning by the Office for National Statistics showed that British average weekly wages grew at the fastest pace since January 2009 in the three months to August, though employment levels did not improve as predicted.
An unexpected 5,000 decline in employment in the period, with economists having pencilled in a 15,000 increase, was not enough to move UK unemployment off its 43-year low of 4.0% in the three months to August.
UK average weekly earnings, excluding bonuses, rose 3.1% in the three month period, up from the 2.9% rate reported a month ago, which was forecast to be maintained. Adding bonuses into the calculation and average pay rose 2.7%, which was again better than the 2.6% seen a month ago that the market expected to be repeated, and equal to the level of CPI in August.
Fresher data from the ONS showed jobless claims in September of 18,500, more than double the number seen in August but still 2.6% of the workforce.
Chris Beauchamp, chief market analyst at IG, said the rise in wages was enough to cancel out any disappointment about the jump in the claimant count.
As far as sterling strength is concerned, Beauchamp said it cannot be "entirely divorced from the weaker dollar, which continues to lose ground in the wake of last week's CPI figure, which has calmed fears of a faster pace of Fed tightening".
"Equity markets more broadly remain calm, but hesitant. From Brexit, to US/Saudi tensions and trade worries, there are plenty of reasons to hold off on buying the dip, even if earnings season has begun in strong form," said Beauchamp.
Investors were looking ahead to Wednesday's EU summit in Brussels after Theresa May said on Monday that a Brexit deal now looks unlikely until December, as it may take "weeks" to break the deadlock in talks.
The Irish border remains the main sticking point in negotiations, with the EU wanting to keep Northern Ireland in the single market and customs union as a backstop in case no other solution is found during talks.
"If no deal were done, and the UK were forced to leave the EU without a deal in March 2019, not only would there be potentially severe disruption to trade, but the hard border the two sides are trying to avoid in Ireland might well go up anyway," HSBC said in a note. "So, by failing to reach an agreement to avoid the border, the two sides might actually end up forcing it to happen, and 21 months earlier than it would otherwise have done (because there would be no transition to end-2020 in this scenario). For this reason, we would expect some kind of agreement between the two sides by March 2019, even if it is only to extend the Article 50 negotiation period."
In corporate news, Johnson Matthey, which makes emission control technologies and is a supplier to Volvo, was the standout loser after the Swedish manufacturer warned that some of its vehicle engines may exceed emissions limits.
British American Tobacco was lower after saying it cut its full-year revenue target for next-generation products, while Madame Tussauds and Legoland operator Merlin Entertainments slid after a disappointing trading update.
Tesco slumped as the latest data from Kantar Worldpanel showed the supermarket chain lost more market share in the 12 weeks to 7 October, while Sainsbury's was also weaker as it was again found to be the slowest growing of the 'big four'.
Housebuilder Bellway rose after reporting a jump in full-year profit and revenue as completions breached the 10,000 mark for the first time while defence contractor Meggitt surged as it upgraded its 2018 revenue guidance.
Drax rallied after announcing the acquisition of Scottish Power's portfolio of pumped storage, while Rio Tinto advanced after posting a 5% drop in third-quarter iron ore production.
Education publisher Pearson was trading higher ahead of its nine-month trading update on Wednesday.
Meanwhile, there was a veritable avalanche of ratings changes on the broker note front.
Ocado was boosted by a double-upgrade to 'buy' at Bank of America Merrill Lynch, while Admiral gained after it was lifted to 'buy' at Goldman Sachs.
Aggreko powered ahead after an upgrade to 'outperform' by RBC Capital Markets, while Antofagasta was boosted to 'buy' at Peel Hunt and to 'outperform' at Macquarie.
British Land and Capital & Regional were both cut to 'hold' at Stifel, which downgraded Land Securities to 'sell' and upgraded LondonMetric, Shaftesbury and Workspace to 'buy'. Stifel also downgraded Superdry to 'hold'.
Charter Court Financial Services was initiated at 'buy' at Citi, while Close Brothers and Paragon were started at 'neutral'.
Following its profit warning on Monday, medical equipment maker Convatec was cut to 'neutral' by JPMorgan and Goldman Sachs.
Homeserve was started at 'buy' by Berenberg and upgraded to 'buy' at Citi, while Imperial Brands was initiated at 'outperform' by Bernstein. Intu was cut to 'neutral' at Citi, while JD Sports was rated new 'underweight' at Morgan Stanley and Just Eat was upgraded to 'hold' by Deutsche Bank.
PageGroup was raised to 'outperform' by Credit Suisse, while Smith & Nephew was cut to 'hold' at HSBC and SThree was downgraded to 'neutral' at Credit Suisse.
Market Movers
FTSE 100 (UKX) 7,010.32 -0.27%
FTSE 250 (MCX) 18,933.80 0.69%
techMARK (TASX) 3,309.31 0.93%
FTSE 100 - Risers
Ocado Group (OCDO) 827.60p 4.79%
Experian (EXPN) 1,792.50p 3.43%
Halma (HLMA) 1,294.12p 2.87%
Croda International (CRDA) 4,584.00p 2.62%
Rentokil Initial (RTO) 305.80p 2.41%
Pearson (PSON) 810.60p 2.30%
BAE Systems (BA.) 574.40p 2.24%
Hargreaves Lansdown (HL.) 1,808.50p 1.83%
Rolls-Royce Holdings (RR.) 882.40p 1.82%
NMC Health (NMC) 3,140.00p 1.82%
FTSE 100 - Fallers
Johnson Matthey (JMAT) 2,945.00p -4.85%
Tesco (TSCO) 206.70p -4.31%
Marks & Spencer Group (MKS) 284.20p -2.94%
Randgold Resources Ltd. (RRS) 5,946.00p -2.24%
Just Eat (JE.) 606.80p -2.22%
Anglo American (AAL) 1,667.40p -1.96%
Glencore (GLEN) 313.45p -1.63%
Fresnillo (FRES) 898.40p -1.51%
British American Tobacco (BATS) 3,283.55p -1.42%
BP (BP.) 551.90p -1.34%
FTSE 250 - Risers
Meggitt (MGGT) 524.80p 6.13%
Equiniti Group (EQN) 212.65p 5.27%
Safestore Holdings (SAFE) 523.50p 4.83%
RHI Magnesita N.V. (DI) (RHIM) 4,070.00p 4.79%
Millennium & Copthorne Hotels (MLC) 491.00p 4.47%
Convatec Group (CTEC) 155.85p 3.90%
Kier Group (KIE) 900.00p 3.81%
Drax Group (DRX) 379.60p 3.72%
Greencore Group (GNC) 196.05p 3.68%
Aggreko (AGK) 827.40p 3.53%
FTSE 250 - Fallers
Plus500 Ltd (DI) (PLUS) 1,231.00p -6.46%
Merlin Entertainments (MERL) 345.90p -6.44%
Kaz Minerals (KAZ) 488.40p -3.21%
Premier Oil (PMO) 124.00p -3.05%
BTG (BTG) 546.50p -3.02%
Ferrexpo (FXPO) 222.80p -2.66%
JD Sports Fashion (JD.) 409.10p -2.27%
Hunting (HTG) 713.00p -2.13%
Petrofac Ltd. (PFC) 598.93p -2.07%
IG Group Holdings (IGG) 590.50p -1.67%