London midday: Stocks rise amid trade war hopes, May faces leadership challenge
Calm prevailed in London's financial markets on Wednesday amid signs of improving Sino-US relations, with the FTSE 100 firmly in the green by midday and the pound languishing at recent lows but up on the day as investors mulled news of Theresa May's leadership challenge.
The FTSE 100 was up 1.2% at 6,888.60, while the pound was 0.4% higher against the dollar at 1.2541 and 0.3% firmer versus the euro at 1.1065, as it emerged that Prime Minister Theresa May will face a vote of no confidence in her leadership later in the day.
Market commentators said the pound's nudge higher in the aftermath of the announcement was probably down to the fact that the leadership challenge was already priced in to some extent, and to hopes that article 50 will be delayed to avoid a hard Brexit.
David Cheetham, chief market analyst at XTB, pointed out that while the pound dropped to its lowest level in 20 months against the dollar earlier and dipped below the $1.25 mark, selling has been pretty orderly and far from the panic stations seen in previous declines.
"Sterling has lost between 1-2% against the dollar, euro and yen so far this week and given the level of negative developments this is a relatively muted depreciation. A move back to the post-referendum lows around the $1.20 mark, or even lower, can’t be ruled out if May is ousted but this isn’t the base-case scenario. It appears that Theresa May has more than a fair chance of winning the leadership contest and if she does by a significant margin it would serve to embolden her position and could well lead to a relief rally in the pound."
Voting is expected to take place between 1800 GMT and 2000 GMT, after the required 48 letters calling for a contest were delivered. If May loses the vote, there will be a Conservative leadership contest in which she cannot stand. If she wins, however, her leadership cannot be challenged for at least another year. She will require the backing of more than 50% of Conservative MPs to survive.
"On Monday, we counted that 173 of them had stated publicly that they backed the Prime Minister’s Brexit deal, and many of the 100-odd rebels will not be prepared to trigger what could be a lengthy leadership contest at a time of heightened national importance," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"As a result, Mrs May should win the vote, though the situation is fluid, the ballot is anonymous, and the Prime Minister might resign anyway if she wins by a small margin.
"We would emphasise, however, that a change of leader would not alter the arithmetic in parliament, which still suggests that the sort of Brexit set out in the Political Declaration will need to be softened further to get a majority of MPs to accept a deal."
The strong showing in London followed a positive session in Asia, with sentiment underpinned by reports that China has agreed to cut tariffs on US cars from 40% to 15% in a move aimed at de-escalating the trade war between it and the US. The mood was also lifted by news that Huawei's chief financial officer, Meng Wanzhou, was released on bail.
In corporate news, aerospace company Rolls-Royce rallied after saying it was still implementing its contingency plans after the UK government pulled its vote on the Brexit withdrawal agreement. The group also confirmed its 2018 full year forecasts with both group and core profit and cash flow to be in the upper half of its full year guidance range.
Hard landscaping products manufacturer Marshalls racked up strong gains as it announced the acquisition of concrete brick manufacturer Edenhall for up to £17.2m as it said it expects to exceed full-year expectations thanks to better second-half revenue growth.
Indivior gained ground after some better news from the US courts in its battle with generic drug maker Dr Reddy's over its opioid addiction treatment Suboxone.
On the downside, Sainsbury's fell as the Competition and Markets Authority said that it and Asda must stick to their current timetable after the pair pleased for more time to argue the case for their proposed £12bn merger.
Wood Group slumped after it warned of future market volatility as it reported that 2018 results would be in line with expectations.
Superdry was in free fall as the fashion retailer warned on profits, pinning the blame on unseasonably warm weather again as it posted a 49% drop in underlying interim pre-tax profit, while Dixons Carphone tumbled as it swung to a £440m loss in the first half.
Man Group and Metro Bank were both weaker after downgrades to 'neutral' at JPMorgan and Citi, respectively.
Market Movers
FTSE 100 (UKX) 6,888.60 1.20%
FTSE 250 (MCX) 17,846.31 1.09%
techMARK (TASX) 3,371.75 0.50%
FTSE 100 - Risers
GVC Holdings (GVC) 675.50p 5.14%
Rolls-Royce Holdings (RR.) 818.00p 4.76%
Standard Life Aberdeen (SLA) 233.46p 3.83%
Centrica (CNA) 138.55p 3.40%
WPP (WPP) 868.80p 2.94%
Standard Chartered (STAN) 606.80p 2.93%
Coca-Cola HBC AG (CDI) (CCH) 2,457.00p 2.93%
TUI AG Reg Shs (DI) (TUI) 1,147.00p 2.92%
BHP Group (BHP) 1,606.80p 2.89%
Associated British Foods (ABF) 2,210.00p 2.74%
FTSE 100 - Fallers
Wood Group (John) (WG.) 590.40p -8.35%
Sainsbury (J) (SBRY) 282.10p -4.82%
Next (NXT) 4,533.00p -1.88%
Randgold Resources Ltd. (RRS) 6,840.00p -0.96%
CRH (CRH) 2,018.00p -0.69%
Morrison (Wm) Supermarkets (MRW) 224.85p -0.66%
Evraz (EVR) 477.80p -0.31%
Fresnillo (FRES) 811.00p -0.30%
AstraZeneca (AZN) 6,092.75p -0.18%
easyJet (EZJ) 1,063.99p -0.09%
FTSE 250 - Risers
Thomas Cook Group (TCG) 29.49p 16.56%
Marshalls (MSLH) 459.60p 10.27%
IP Group (IPO) 112.80p 9.51%
Equiniti Group (EQN) 221.50p 7.79%
FDM Group (Holdings) (FDM) 813.00p 6.41%
Vivo Energy (VVO) 118.98p 6.23%
SIG (SHI) 109.65p 5.53%
NewRiver REIT (NRR) 229.00p 4.57%
Just Group (JUST) 98.55p 4.45%
Contour Global (GLO) 168.70p 4.33%
FTSE 250 - Fallers
Superdry (SDRY) 385.00p -32.87%
Dixons Carphone (DC.) 138.20p -8.48%
Metro Bank (MTRO) 1,829.00p -3.58%
Computacenter (CCC) 990.00p -2.75%
Man Group (EMG) 134.35p -2.47%
Greencore Group (GNC) 167.30p -2.31%
Spectris (SXS) 2,321.00p -1.78%
B&M European Value Retail S.A. (DI) (BME) 311.20p -1.21%
JD Sports Fashion (JD.) 361.50p -1.20%
Softcat (SCT) 603.00p -0.99%