London close: Defensive stocks lead rise as bond yields relent

London stocks shook off a sluggish start on Thursday to recover most of the previous day's losses as utilities rose as bond yields retreated and Wall Street rallied.

The FTSE 100 gained 42.11 or 0.57% by the close to 7,421.43, while the pound was up 0.4% the euro at 1.1496 and fell, then rose, then fall to end flat against the greenback at 1.3927. Oil prices recovered the previous day's dip, with Brent crude up 0.5% at $74.41.

Sterling gained against the euro as European Central Bank made no changes to policy and bank president Mario Draghi said policymakers "did not discuss monetary policy per se” and insisted the bank could remain accommodative well past September.

Several market analysts put the easing of bond yields as a key factor supporting equities on the day, including Joshua Mahony at IG, with the US 10-year treasury yield "a driving force behind the choppy price action this week, with the rise through 3% raising fears there would be an exodus from the equity space, shrinking business investment, and rising costs for leveraged firms".

"Today’s drop in the 10Y yield has helped banish some of the market fears over the negative economic impact of increasing rates, with the fall towards 2.9% raising hopes we will break the recent trend after almost two weeks of daily gains," he said.

Jasper Lawler at London Capital Group noted that utilities firms were top risers on the FTSE 100 as bond yields came down.

This saw cigarette makers Imperial Brands and BAT and water companies United Utilities and Severn Trent atop the leaderboard, the latter in spite of a highly critical report that blamed the industry for a lack of investment that is likely to see any drought in coming summers resulting in large parts of the country having their water cut off. The National Infrastructure Commission blamed a lack of investment by the water industry, piling further pressure on a sector already under fire from regulator Ofwat.

Centrica racked up healthy gains as it emerged that the merger of rivals SSE and Npower could be up for further scrutiny after the Competition and Markets Authority's initial Phase 1 investigation found that the rivalry between the large energy companies was an "important factor" in how they set tariffs.

Oil giant BP pushed up as it appointed former BG Group and Statoil boss Helge Lund as its new chairman, succeeding Carl-Henric Svanberg, with effect from 1 January 2019.

Evraz led the FTSE 100, with the Russian steelmaker's mixed first-quarter trading update doing enough to help the shares continue a rally that began a day earlier after they had fallen around 19% since economic sanctions were imposed on several oligarchs earlier in the month.

Asset manager Schroders was in the black despite saying that asset under management and administration slipped in the first quarter, while Domino's Pizza advanced after serving up an 18% rise in first-quarter sales.

Drax was the top gainer on the FTSE 250 on the back of an upgrade to 'buy' from 'neutral' at Bank of America Merrill Lynch.

On the downside, Royal Dutch Shell slipped as it reported a strong rise in first-quarter income thanks to higher oil and gas prices, and growth from its gas and upstream businesses but said less favourable refining market conditions and lower contributions from trading impacted the earnings of the downstream business.

Barclays could not hold onto mid-session gains after it reported revenue down 8% to £5.36bn and a loss due to litigation and conduct items, but said it intended to return more capital to shareholders. Underlying profit crept up 1% in the first quarter, if excluding litigation and conduct items, to £1.73bn.

Taylor Wimpey was in the red after saying demand for new housing has continued to be good through early 2018 and that it remains on track to meet its expectations for the year, but reporting a drop in the sales rate and order book.

Insurer Hastings slumped even as it reported a jump in written premiums as its live customer policies and market share grew, with analysts pointing out that the first-quarter performance shows a slowdown in the growth trajectory for the year.

Antofagasta, Legal & General, Fresnillo, Glencore, Relx, Rolls-Royce, William Hill, Man Group, Weir, Petrofac, IWG, National Express, Spirax-Sarco Engineering and International Public Partnerships were among the companies whose stock went ex-dividend.

Macro data on Thursday was focused on lenders and retailers. Data released in the morning from the financial sector trade body, UK Finance, showed that UK households spent less on credit cards and mortgages for property purchases slumped in March, suggesting increased consumer caution as well as a hit from the Beast from the East. RBS and LLoyds were lower on the day.

Credit card spending fell 1.2% in March from a year earlier to £9.7bn and repayments outstripped new lending in the first quarter. Spending may have been affected by the Siberian weather system - labelled the 'Beast from the East' - that froze Britain and caused a slump in retail sales that month.

Gross mortgage lending fell 2.3% to £20.5bn as the number of approvals for house purchases dropped 21% to 38,710. Remortgage approvals fell 6.4% to 27,057.

Households increased their deposits at banks and building societies by 1.8% to £846.9bn. At high street banks, deposits rose 4.8% to £639.4bn. Overdraft repayments also increased.

The figures suggest households may be exercising caution as the economy slows and amid speculation about when the Bank of England will approve a further increase to interest rates. Transactions in the housing market have fallen sharply, especially in London, as buyers grow wary of paying high prices.

Elsewhere, the latest quarterly distributive trades survey from the CBI showed retail sales growth in the UK missed expectations in April. The retail sales volume balance increased to -2 from the five-month low of -8 in May, falling short of expectations for a balance of +5. The survey found that most retailers expect volumes to increase next Month, with 33% seeing and 8% forecasting a decline, giving a balance of +25.

Anna Leach, CBI head of Economic Intelligence, said: "It’s no secret that UK high streets have endured tough trading conditions in recent months, with some big names closing or cutting back. Much of this reflects ongoing structural changes in the sector as well as the continued squeeze on households’ real incomes. While conditions have improved for households recently - with real wage growth inching into positive territory - we expect further gains in living standards to remain modest. So the pressure looks set to stay on retailers for the time being.”

Next, Marks & Spencer and Sainsbury's were among the risers, but Tesco shares were lower.

Market Movers

FTSE 100 (UKX) 7,418.07 0.53%
FTSE 250 (MCX) 20,137.62 0.59%
techMARK (TASX) 3,407.70 0.67%

FTSE 100 - Risers

Evraz (EVR) 449.40p 6.62%
United Utilities Group (UU.) 737.60p 3.19%
Severn Trent (SVT) 1,925.50p 3.00%
GKN (GKN) 456.50p 2.93%
Imperial Brands (IMB) 2,541.00p 2.79%
Just Eat (JE.) 754.40p 2.72%
BT Group (BT.A) 245.45p 2.68%
National Grid (NG.) 826.30p 2.53%
Compass Group (CPG) 1,531.50p 2.41%
Centrica (CNA) 150.60p 2.31%

FTSE 100 - Fallers

Legal & General Group (LGEN) 267.10p -4.06%
Fresnillo (FRES) 1,251.00p -2.04%
Glencore (GLEN) 370.05p -1.90%
Direct Line Insurance Group (DLG) 369.10p -1.49%
Admiral Group (ADM) 1,973.50p -1.42%
Barclays (BARC) 210.00p -1.41%
Taylor Wimpey (TW.) 190.25p -1.35%
Royal Dutch Shell 'A' (RDSA) 2,502.50p -1.03%
Antofagasta (ANTO) 951.20p -0.92%
Tesco (TSCO) 237.50p -0.79%

FTSE 250 - Risers

Drax Group (DRX) 318.60p 8.22%
Melrose Industries (MRO) 225.00p 4.17%
Wood Group (John) (WG.) 567.40p 3.69%
TalkTalk Telecom Group (TALK) 129.00p 3.53%
Hikma Pharmaceuticals (HIK) 1,261.00p 3.49%
Ocado Group (OCDO) 521.80p 3.45%
Pennon Group (PNN) 688.00p 3.21%
Cranswick (CWK) 2,952.00p 3.07%
Pershing Square Holdings Ltd NPV (PSH) 930.00p 2.99%
FDM Group (Holdings) (FDM) 1,008.00p 2.96%

FTSE 250 - Fallers

Lancashire Holdings Limited (LRE) 582.00p -3.48%
National Express Group (NEX) 391.00p -3.22%
Hastings Group Holdings (HSTG) 271.20p -2.87%
Vietnam Enterprise Investments (DI) (VEIL) 450.00p -2.81%
Contour Global (GLO) 256.00p -2.29%
Renewi (RWI) 73.30p -2.27%
NewRiver REIT (NRR) 287.50p -2.21%
International Public Partnerships Ltd. (INPP) 144.00p -2.17%
Ascential (ASCL) 407.60p -2.02%
IWG (IWG) 249.10p -1.81%