London midday: FTSE dragged lower as pound reacts to Brexit reports

London stocks had extended losses by midday on Tuesday, dragged lower as results from HSBC and BHP Billiton left investors disappointed.

The FTSE 100 was off 0.4% at 7,221.84, while the pound was down 0.2% against the dollar at 1.3966 but 0.3% firmer versus the euro at 1.1320.

Sterling was initially tickled higher as investors enjoyed a vivid speech by Brexit secretary David Davis in Vienna. He told business leaders in Austria that worries the Tories will plunge Britain into a "Mad Max-style world borrowed from dystopian fiction" after leaving the EU are unfounded.

The euro under pressure amid reports that the EU parliament was preparing its own post-Brexit plan that which would see the UK given special associate status.

"This kind of bespoke deal is exactly what the pair need, an acknowledgement of their shared history and mutual dependency, and the fact it comes from arch-federalist Verhofstadt gives it extra weight," said analyst Chris Beauchamp at IG. "Is sanity about to prevail?"

The European parliament was said to be preparing a detailed 60-paragraph resolution which will call for more flexibility in future relationship talks with Britain.

David Cheetham at XTB added that these latest developments reveal some possible cracks in the EU's hardline approach and "are the clearest sign yet that the bloc may accept preferential terms as far as trade is concerned post-Brexit".

He said the most positive part of the reports were that the EU to negotiate an association agreement which could give Britain “privileged” single market access and membership of EU agencies.

Figures out from the Confederation of British Industry later in the morning showed UK manufacturing growth slowed more than expected in February as the boost from a weakening pound starts to fade.

The CBI's order balance dropped to +10 from +14 in January, short of the +11 expected, and marking a four-month low but still well above the long-run average of -14.

Meanwhile, the balance of export orders came fell to +10 from +19 the month before and the balance of output expectations declined to +16 from +24. Volume of output in the last three months came in at +24 compared to +21.

The selling prices balance fell to +25 in February from +40 the previous month, but remained well above its 30-year average of +16.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The further decline in the CBI’s total orders balance in February indicates that the support to growth in manufacturing output from sterling’s depreciation is beginning to fade."

He added that the boost to growth from sterling’s depreciation will continue to fade as this year progresses.

In corporate news, heavily-weighted HSBC was under the cosh as its full-year profit and revenue missed expectations, while mining giant BHP Billiton was also under pressure as its interim profit fell short of analysts' forecasts.

IG's Beauchamp said: "The banking heavyweight’s numbers may have seen profit double to a tidy $17 billion, but so much of this improvement had been factored in that even some pre-results weakness in the share price, which had fallen back from a recent high of 800p, was not enough to tempt the buyers. Investors that have lived through the lean period of Gulliver’s recovery efforts clearly want something more, with a buyback extension likely high on their wish list."

InterContinental Hotels was in the red as it reported a jump in full-year profit but said it will not be paying out any additional capital this year as it looks to reinvest savings in growth.

Home furnishings retailer Dunelm tumbled as it posted an 8% drop in underlying interim pre-tax profit, said its profit margin declined by 1.8 percentage points to 48.6% and announced the departure of its chief financial officer.

Turnaround specialist Melrose Industries, which is in the throes of a hostile bid for GKN, reversed earlier gains as it said its pre-tax loss narrowed in 2017.

On the upside, Evraz was the standout gainer after signing a new five-year contract on Monday to supply rail products to Russian Railways.

William Hill was in the black even as the Gambling Commission slapped a £6.2m fine on the company for breaching anti-money-laundering and social responsibility regulations.

Fidessa rocketed after confirming that it is in "advanced discussions" about being taken over by Swiss banking software group Temenos for 3,646.7p per share in cash, while Hikma Pharmaceuticals surged after appointing Sigurdur Olafsson as its new chief executive officer.

Sports Direct rose as it announced plans to buy back up to £100m worth of its shares as it looks to reduce the share capital of the company and Bodycote advanced as it entered into a long-term contract with France's afran to provide manufacturing services.

Wood Group was also higher as it won a strategic five-year engineering services contract at an Australian gas export project.

On the broker note front, Reckitt Benckiser was cut to 'neutral' at Credit Suisse, while Travis Perkins was downgraded to 'hold' at Berenberg.

Grafton and ZPG were upgraded to 'buy' and 'overweight' by Berenberg and Morgan Stanley, respectively.

Market Movers

FTSE 100 (UKX) 7,221.84 -0.36%
FTSE 250 (MCX) 19,764.38 0.56%
techMARK (TASX) 3,326.23 0.71%

FTSE 100 - Risers

Evraz (EVR) 430.20p 4.42%
Persimmon (PSN) 2,460.00p 1.44%
Smith (DS) (SMDS) 482.00p 1.43%
Centrica (CNA) 130.50p 1.40%
CRH (CRH) 2,490.00p 1.30%
Croda International (CRDA) 4,462.00p 1.18%
Taylor Wimpey (TW.) 190.08p 1.14%
Berkeley Group Holdings (The) (BKG) 3,828.00p 1.11%
BT Group (BT.A) 230.35p 1.03%
GlaxoSmithKline (GSK) 1,321.80p 1.01%

FTSE 100 - Fallers

InterContinental Hotels Group (IHG) 4,487.00p -4.47%
BHP Billiton (BLT) 1,492.60p -4.44%
HSBC Holdings (HSBA) 731.70p -3.79%
Reckitt Benckiser Group (RB.) 5,919.00p -2.57%
WPP (WPP) 1,410.00p -1.78%
Rio Tinto (RIO) 3,996.00p -1.45%
Shire Plc (SHP) 3,066.00p -1.43%
Antofagasta (ANTO) 889.60p -0.91%
Micro Focus International (MCRO) 2,042.00p -0.78%
Whitbread (WTB) 3,879.12p -0.61%

FTSE 250 - Risers

Fidessa Group (FDSA) 3,540.00p 21.44%
Hikma Pharmaceuticals (HIK) 1,026.50p 9.16%
Sports Direct International (SPD) 373.80p 4.53%
Ocado Group (OCDO) 510.00p 4.51%
IP Group (IPO) 114.20p 4.39%
ZPG Plc (ZPG) 348.40p 3.81%
Grafton Group Units (GFTU) 786.50p 3.22%
SIG (SHI) 152.30p 3.18%
Inmarsat (ISAT) 474.40p 2.71%
Thomas Cook Group (TCG) 124.70p 2.47%

FTSE 250 - Fallers

Dunelm Group (DNLM) 590.00p -8.74%
McCarthy & Stone (MCS) 135.30p -3.97%
Hochschild Mining (HOC) 223.10p -2.41%
Capita (CPI) 181.20p -2.40%
Kaz Minerals (KAZ) 811.60p -2.03%
AA (AA.) 112.69p -1.58%
Greencore Group (GNC) 186.05p -1.56%
Cineworld Group (CINE) 240.40p -1.48%
Lancashire Holdings Limited (LRE) 563.50p -1.40%
Merlin Entertainments (MERL) 351.51p -1.40%