London close: Shares buoyed by rate cut talk

London's top flight index finished at a two-month high on Friday, helped by 'dovish' comments from one of the Bank of England's most hawkish rate-setters, Michael Saunders, and end of quarter window-dressing.

"Opening indecision was replaced by modest gains, as US equities joined Europe in posting gains. It has been a week of political uncertainty on both sides of the Atlantic, and the tone has been broadly negative for markets, as worries about Brexit and trade wars continue to stalk investors," said IG's Chris Beauchamp.

"Month- and quarter-end flows might help to support equities for today and the beginning of next week, but overall the more bearish late September tone has prevailed as normal."

The FTSE 100 was up 1.02% at 7,426.21, hitting a two-month high, while the pound was down 0.2% against the US dollar and by 0.4% versus the euro at 1.2300 and 1.1245, respectively, as Saunders said an interest rate cut may be needed even if a Brexit deal is agreed.

Gains on the second-tier index were a tad more muted, with the FTSE 250 up by 0.77% at 19,970.95.

Saunders pointed out that uncertainty would persist even if a no-deal scenario was avoided. "In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing," he said in a speech in Barnsley.

David Cheetham, chief market analyst at XTB, expressed surprise that Saunders' comments were moving markets.

"Economic data has been poor on the whole and while it looks like a technical recession will be avoided with a rebound to GDP growth probable in the third quarter, the levels of activity seen in other metrics such as retail sales and PMIs suggest that the economy is still barely keeping its head above water," he said.

"Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front, with markedly divergent Brexit paths still possible and it is actually pretty shocking that a comment that a rate cut is 'quite plausible' has caused such a response."

In the background meanwhile, after meeting with chief EU Brexit negotiator Michel Barnier, Brexit Secretary, Stephen Barclay, said that: "I think there is still a long way to go. I think we are coming to the moment of truth in these negotiations."

According to Barclay, the Irish backstop had to go, but an agreement with Brussels was possible if both sides showed good will.

Investors were also mulling the latest survey from GfK, which showed that consumer confidence improved a touch in September although sentiment remained negative overall amid ongoing uncertainty about Brexit.

GfK's long-running consumer confidence index rose to -12 from -14 in August, coming in ahead of expectations for no change.

Joe Staton, client strategy director at Gfk, said: "More mixed signals this month as consumers continue to feel less than positive about the state of their personal finances and the general economy. Yes, all sub measures are higher, but they are anaemic in the case of our purchase intentions and how we view our wallets, while the results on the wider economy are still depressed.

"Since the Brexit referendum we have witnessed a long succession of negative Overall Index scores with the overall trend downwards. This month, British consumers appear to be treading water during this wait-and-see run up to October 31st."

In equity markets, housebuilder Persimmon racked up the strongest gains on the FTSE 100 after an upgrade to 'buy' at Jefferies, which said it was among its key picks in the sector.

Miners were on the rise, with Anglo American, Glencore and BHP all trading up amid optimism over Sino-US trade relations.

"While we are yet to see another major US-China breakthrough, the US-Japan deal offers optimism that Trump could soon emerge with something similar from Chinese talks," said Joshua Mahony, senior market analyst at IG.

On the downside, tobacco company Imperial Brands and education publisher Pearson were both on the back foot again following profit warnings on Thursday, along with cruise operator Carnival, which was also hit by a downgrade at Berenberg.

Precious metals miner Fresnillo lost its shine as gold prices retreated, with Hochschild Mining and Centamin also lower.

Market Movers

FTSE 100 (UKX) 7,426.21 1.02%
FTSE 250 (MCX) 19,970.95 0.77%
techMARK (TASX) 3,897.84 0.55%

FTSE 100 - Risers

Persimmon (PSN) 2,175.00p 5.22%
Kingfisher (KGF) 208.90p 3.62%
Smurfit Kappa Group (SKG) 2,452.00p 3.55%
3i Group (III) 1,184.50p 3.36%
Next (NXT) 6,216.00p 3.12%
International Consolidated Airlines Group SA (CDI) (IAG) 474.20p 2.86%
Bunzl (BNZL) 2,147.00p 2.73%
St James's Place (STJ) 975.00p 2.70%
NMC Health (NMC) 2,785.00p 2.67%
Smith (DS) (SMDS) 354.10p 2.61%

FTSE 100 - Fallers

Fresnillo (FRES) 703.00p -3.73%
Polymetal International (POLY) 1,149.00p -2.51%
Imperial Brands (IMB) 1,774.60p -1.31%
Admiral Group (ADM) 2,084.00p -0.76%
Pearson (PSON) 734.40p -0.76%
Carnival (CCL) 3,379.00p -0.65%
BAE Systems (BA.) 569.20p -0.49%
National Grid (NG.) 883.00p -0.45%
Vodafone Group (VOD) 162.20p -0.41%
Associated British Foods (ABF) 2,297.00p -0.26%

FTSE 250 - Risers

Finablr (FIN) 156.20p 12.77%
IP Group (IPO) 65.30p 12.20%
Rank Group (RNK) 191.80p 6.58%
Watches of Switzerland Group (WOSG) 283.50p 5.00%
SSP Group (SSPG) 636.00p 4.61%
Oxford Instruments (OXIG) 1,290.00p 4.37%
Marks & Spencer Group (MKS) 188.00p 4.30%
Hilton Food Group (HFG) 1,004.00p 4.04%
PureTech Health (PRTC) 246.00p 3.80%
SIG (SHI) 127.40p 3.58%

FTSE 250 - Fallers

Sirius Minerals (SXX) 2.70p -21.70%
Hochschild Mining (HOC) 208.60p -4.66%
The Renewables Infrastructure Group Limited (TRIG) 126.20p -3.66%
Ferrexpo (FXPO) 162.45p -3.59%
Centamin (DI) (CEY) 124.95p -3.18%
Go-Ahead Group (GOG) 2,032.00p -2.96%
Aston Martin Lagonda Global Holdings (AML) 565.00p -2.95%
Ultra Electronics Holdings (ULE) 2,024.00p -2.60%
Big Yellow Group (BYG) 1,015.00p -2.40%
Stagecoach Group (SGC) 133.20p -2.20%