London close: UK stocks give up gains as confidence proves short-lived

London stocks gave up some the previous day's gains on Tuesday as sterling spiked higher after a senior European official said Britain would be allowed to unilaterally revoke Article 50, while doubts crept in about the trade truce agreed by the US and China.

The FTSE 100 closed down 0.6% to 7,022.76, reversing gains made a day earlier and in early trading on Tuesday, as sterling shot up after European Court of Justice advocate general Campos Sanchez-Bordona said European Union law allowed the UK to revoke article 50 without the need for formal agreement from the European Commission or other EU member states.

In his formal opinion, Sanchez-Bordona said it was essential that MPs knew they could stop the Brexit process, dismissing the UK government’s claims the issue was hypothetical.

The UK government and European Commission had insisted the Brexit process could only be stopped by unanimous agreement. The commission opposed the case on the basis that it would allow states to renegotiate their membership on more favourable terms.

The opinion, which is not binding on the court, comes just a week after the case was heard at the ECJ following a referral from Scotland's highest civil court, the Court of Session.

"If the ECJ follows the advocate general, as it often does, the UK could cancel the Article 50 process without consulting the EU27 as long as it does not ratify the withdrawal agreement," economists at Citigroup noted, adding that this would require a vote and majority in parliament.

This came as Prime Minister Theresa May prepared to kick off a week of debate on her Brexit deal ahead of the 11 December vote in Parliament.

Later in the session, as the government fought lost parliamentary votes accusing the government of failing to publish the full Brexit legal advice, and Wall Street got going, the pound slumped back into the red against the dollar and euro to 1.2686 and 1.1189 respectively.

As Donald Trump twittered passive-aggressively about still being a "tariffs man" and US stocks took a dive, traders suggested that worries about the new trade truce were the cause.

"Away from the relief that an escalation has been averted it still isn’t immediately clear what each side has agreed to implement, given some of the claims being made by President Trump around the reducing and removal of tariffs on US made auto imports onto the Chinese mainland," said CMC Markets analyst Michael Hewson.

"This claim doesn't appear in the declaration over what was agreed by both sides at the weekend, so it’s not immediately apparent why the US President believes that China has agreed to this."

There was various UK macro data out earlier, including consumer spending figures from Barclaycard that showed a slowdown to 3.3% year-on-year in November, dipping to its lowest level of growth since March as department store and clothing spending contracted, but entertainment spending remained strong.

The British Retail Consortium also revealed UK retail sales in November decreased 0.5% on a like-for-like basis compared to the same month last year, even though sales were ahead year-on-year over the Black Friday week.

Meanwhile, UK construction activity strengthened last month, despite companies worrying that worries about Brexit are undermining demand. The seasonally adjusted IHS Markit/CIPS UK construction purchasing managers' index inched up to 53.4 in November from 53.2 in October, while the market had expected a decline to 52.5.

However, the construction sector was one of the big fallers of the day, along with defence and most of the industrials and support services sectors.

Downgrades from BofA Merrill Lynch for BAE Systems and Rolls Royce was the cause of the defence retreat. In other broker note action, Standard Chartered was hit by a downgrade to 'hold' at Investec, while FTSE 250 construction group Kier suffered slumped after a downgrade to 'hold' at Canaccord Genuity following the surprise announcement of a rights issue last week.

Debt worries sparked by Kier's warning about tighter contract terms and potential customers and clients "increasingly focused on service providers balance sheets" was affecting the several sectors for the third day in a row. Friday's announcement "is likely to set people focusing in on debt again and not only in the construction sector," said Jamie Constable at broker N+1Singer. "A further thought on debt is on those companies who are said to have asset backing. In many cases this asset backing is likely to be property. With the quoted property companies trading on discounts of 30%-plus and even 40%-plus are we reaching a point when the banks start to question the value of the covenant on the debt."

Elsewhere, heating and plumbing equipment supplier Ferguson was on the back foot even as it reported an 8.5% rise in first-quarter revenue as North American operations offset a fall in the UK.

Russ Mould, investment director at AJ Bell, said: "Despite renaming its business from Wolseley to Ferguson last year to reflect the importance of this US brand, the plumbing and heating products distributor can’t entirely escape the problems dogging its UK division.

"Revenue and profit from this part of the group was down markedly in the first quarter of the current financial year. Although this shouldn’t detract from a strong showing for the substantially more material US arm, it does leave the company’s fortunes very much tied to the American economy, even if it is also looking to expand in Canada."

IG Group retreated as it warned that first-half revenue was expected to be around 6% lower than in the same period in the prior financial year amid a raft of new regulations.

Elsewhere, there were further falls for tour operator Thomas Cook after last week's profit warning and for fashion brand Ted Baker on the back of its 'forced hugging' scandal.

On the upside, Rightmove rallied after an upgrade to 'buy' at Deutsche Bank, while BT gained as Goldman Sachs bumped the stock up to 'buy'.

Precious metals miners Fresnillo and Randgold shone as gold prices rose and Sage Group advanced as it appointed former LSE and Close Brothers executive Jonathan Howell as its new chief financial officer.

Market Movers

FTSE 100 (UKX) 7,022.76 -0.56%
FTSE 250 (MCX) 18,329.64 -1.26%
techMARK (TASX) 3,452.68 -0.89%

FTSE 100 - Risers

Fresnillo (FRES) 800.40p 3.73%
Randgold Resources Ltd. (RRS) 6,452.00p 3.07%
BT Group (BT.A) 261.79p 2.02%
Smith & Nephew (SN.) 1,460.50p 1.78%
Unilever (ULVR) 4,295.00p 1.19%
Sage Group (SGE) 585.80p 1.17%
Direct Line Insurance Group (DLG) 332.50p 1.13%
Land Securities Group (LAND) 814.60p 0.99%
Evraz (EVR) 493.50p 0.96%
AstraZeneca (AZN) 6,211.00p 0.96%

FTSE 100 - Fallers

GVC Holdings (GVC) 732.50p -5.73%
BAE Systems (BA.) 473.30p -5.53%
Smurfit Kappa Group (SKG) 2,108.00p -5.05%
ITV (ITV) 136.89p -4.67%
Smith (DS) (SMDS) 328.70p -4.64%
TUI AG Reg Shs (DI) (TUI) 1,108.00p -4.61%
Melrose Industries (MRO) 175.20p -4.45%
Ferguson (FERG) 4,975.50p -4.30%
Just Eat (JE.) 577.20p -3.80%
CRH (CRH) 2,139.00p -3.69%

FTSE 250 - Risers

Vivo Energy (VVO) 121.98p 4.43%
Indivior (INDV) 101.95p 3.17%
Brewin Dolphin Holdings (BRW) 333.50p 2.62%
Dechra Pharmaceuticals (DPH) 2,210.00p 2.31%
Assura (AGR) 54.20p 2.07%
Polymetal International (POLY) 794.20p 1.77%
BlackRock Smaller Companies Trust (BRSC) 1,220.00p 1.67%
Great Portland Estates (GPOR) 691.00p 1.62%
Amigo Holdings (AMGO) 258.85p 1.51%
Hochschild Mining (HOC) 166.05p 1.50%

FTSE 250 - Fallers

IG Group Holdings (IGG) 549.50p -9.70%
Rank Group (RNK) 142.40p -8.60%
Ted Baker (TED) 1,420.00p -8.39%
AA (AA.) 83.50p -8.10%
Victrex plc (VCT) 2,360.00p -6.13%
JD Sports Fashion (JD.) 372.30p -4.90%
William Hill (WMH) 158.10p -4.82%
Ferrexpo (FXPO) 179.90p -4.76%
Mitchells & Butlers (MAB) 258.60p -4.58%
Softcat (SCT) 589.00p -4.54%