London close: Stocks fall back, financials retreat on uncertainty in Italy

London stocks tumbled back to around where they started the week on Friday, after disappointing GDP figures and with the financial sector leading the downside amid the prospect of a clash between Brussels and Rome over Italy's budget.

The FTSE 100 fell 0.47% to 7,510.20 despite sterling softening another 0.21% against the dollar to 1.3044. The pound dipped by just 0.01% on the euro to 1.1235 however, even as the single currency stumbled 0.5% to a fresh two-week low against the dollar with investors fretting over the Italian budget.

The Mediterranean country’s government agreed to target a deficit of 2.4% of gross domestic product for the next three years, thus well beyond the 1.6% level being pushed by the country’s finance minister Giovanni Tria but comfortably around the level deemed necessary by co-deputy Prime Minsters Luigi Di Maio and Matteo Salvini as they seek to deliver on their respective electoral promises.

This was "putting two fingers up to Brussels", said analyst Connor Campbell at Spreadex. "That decision does little to rein in Italy’s debt, as the country had promised the EU it would do, and has hit its banking stocks hard, with their losses leading the FTSE MIB more than 2% lower."

With Italy's FTSE Mib Index crashing almost 4%, selling spread to other indices, with Germany's DAX and CAC down 1.52% and 0.85% respectively, while the 10-year spread between Germany and Italy is around 32 basis points wider at 268bp.

British economic data was far from as worrisome, but painted a weaker picture than had been expected. Gross domestic product growth was confirmed at 0.4% for the second quarter but first-quarter growth was revised down by the Office for National Statistics.

Business investment fell by 0.7% in the second quarter and has now fallen in each quarter of the year so far and there was a net trade drag of 0.6 percentage points, though growth in household spending was revised up to 0.4% from 0.3%.

"Today’s GDP figures left the economy looking a little weaker than before," said economist Ruth Gregory at Capital Economics, with the composition of growth revealed to be rather less healthy.

With the possibility of a “no deal” Brexit still hanging over the economy, consumers’ finances still under pressure and both investment and exports showing the strain from Brexit, Sam Tombs at Pantheon Macroeconomics said it "remains unlikely" that the economy will be strong enough for the Bank of England to seriously consider raising interest rates again before the March 2019 deadline for Brexit.

In other UK data, Gfk's consumer confidence index missed expectations, falling to -9 from -7 in August, versus the -8 consensus estimate.

Brent crude pushed oil to $82.44 a barrel overnight but was back below $82 by the start of the European session.

Among London blue chips, financial stocks were dominating the lower echelons of the Footsie amid the worries about Europe and implication for BoE rates rises, with non-life insurers Admiral and Direct Line joined by banks RBS and Barclays, asset manager Standard Life Aberdeen and life insurer Avvia.

Exerting an extra drag on the insurance sector, RSA Insurance was the biggest faller as poor UK underwriting results drove a disappointing overall third quarter, despite reporting a strong quarter for its international businesses. Net written premiums for the third quarter were up 4% year-on-year but large and weather losses were above expected levels in the quarter and particularly elevated in the UK.

Commercial landlord Shaftesbury fell after saying potential clients for larger and smaller properties in London's West End were being cautious, with one major retailer pulling out despite having agreed terms.

United Utilities gained after the water company said it had increased revenue in the first half of the year but that statutory profits will take a hit from extra investment to cope with the long, hot summer.

Games Workshop staggered lower after ex-chairman Tom Kirby sold £20m worth of shares at a price £36.50 apiece, representing around 1.7% of the total. He will hang on to his remaining 4.8% stake for at least 180 more days.

Millennium & Copthorne Hotels reversed early losses following the announcement of new chief executive Jennifer Fox's decision to step own after less then four months in the job.

Public sector outsourcing specialist Serco soared as it made an unscheduled announcement confirming that trading is set to be stronger than previous guidance for revenues, profitability and cash flow with net debt set to end the year at a lower level too.

EasyJet flew fell after the budget airline said it expected to deliver full year pre-tax profit of between £570-580m, in the upper half of previous guidance and despite the impact of strike action and weather-related air traffic restrictions across Europe.

Miners were mostly higher, led by gold diggers Randgold and Centamin.

Market Movers

FTSE 100 (UKX) 7,510.20 -0.47%
FTSE 250 (MCX) 20,307.04 -0.33%
techMARK (TASX) 3,503.03 -0.40%

FTSE 100 - Risers

Randgold Resources Ltd. (RRS) 5,450.00p 3.61%
Micro Focus International (MCRO) 1,429.50p 3.10%
Next (NXT) 5,500.00p 3.04%
Rolls-Royce Holdings (RR.) 987.40p 2.22%
Fresnillo (FRES) 821.40p 1.99%
United Utilities Group (UU.) 704.00p 1.56%
National Grid (NG.) 791.40p 1.46%
Relx plc (REL) 1,616.00p 1.41%
Reckitt Benckiser Group (RB.) 7,016.00p 1.20%
Evraz (EVR) 566.60p 1.07%

FTSE 100 - Fallers

RSA Insurance Group (RSA) 575.00p -9.31%
Melrose Industries (MRO) 199.90p -3.24%
Paddy Power Betfair (PPB) 6,490.00p -3.13%
Lloyds Banking Group (LLOY) 59.27p -2.84%
GVC Holdings (GVC) 918.50p -2.80%
Barclays (BARC) 171.78p -2.77%
Just Eat (JE.) 670.20p -2.64%
Standard Life Aberdeen (SLA) 306.70p -2.64%
Ocado Group (OCDO) 898.80p -2.24%
Royal Bank of Scotland Group (RBS) 250.00p -2.19%

FTSE 250 - Risers

Serco Group (SRP) 97.80p 10.76%
888 Holdings (888) 199.30p 4.78%
Hochschild Mining (HOC) 163.75p 4.27%
TBC Bank Group (TBCG) 1,684.00p 3.95%
Wizz Air Holdings (WIZZ) 2,877.00p 3.53%
Kaz Minerals (KAZ) 549.60p 3.23%
Centamin (DI) (CEY) 106.20p 2.71%
BBA Aviation (BBA) 300.60p 2.59%
Dechra Pharmaceuticals (DPH) 2,176.00p 2.25%
Halfords Group (HFD) 316.40p 2.00%

FTSE 250 - Fallers

Thomas Cook Group (TCG) 57.90p -5.39%
AA (AA.) 97.00p -5.18%
Sirius Minerals (SXX) 27.94p -4.90%
Quilter (QLT) 134.30p -4.21%
Games Workshop Group (GAW) 3,785.00p -4.18%
Travis Perkins (TPK) 1,065.50p -3.92%
Plus500 Ltd (DI) (PLUS) 1,333.00p -3.68%
Provident Financial (PFG) 604.60p -3.45%
Spire Healthcare Group (SPI) 142.50p -3.39%
Investec (INVP) 539.60p -3.16%