London midday: Stocks push higher as manufacturing data dents sterling

London stocks had extended gains by midday on Friday as the pound was knocked lower by a disappointing reading on the UK manufacturing sector, as investors eyed the release of the latest US non-farm payrolls report.

The FTSE 100 was up 0.5% at 7,004.88 as sterling fell 0.3% against the dollar to 1.3064 and 0.6% versus the euro to 1.1389 after data revealed that UK factory output dropped more than expected at the start of 2019.

The IHS Markit purchasing managers' index fell from 54.2 in December to 52.8 in January, the second-weakest reading since the referendum and suggesting the sector will drag on overall economic growth. Economists were on average expecting a PMI reading of 53.5.

The figures also showed that UK manufacturing companies are stockpiling raw materials and finished goods at the greatest rate since records began as they prepare for a potentially chaotic no-deal Brexit.

Inventory holdings jumped at the sharpest pace in the survey's 27-year history, while higher demand for raw materials, input shortages and supplier capacity issues led to a marked lengthening in average vendor lead times. Jobs numbers were cut for only the second time since the Brexit referendum.

"The start of 2019 saw UK manufacturers continue their preparations for Brexit," said Rob Dobson of IHS Markit.

He said the rapid increase in input stockpiling came as "buying activity was stepped up to mitigate against potential supply-chain disruptions in coming months" and reported signs that inventories of finished goods were being bolstered to ensure warehouses are well stocked to meet ongoing contractual obligations.

Francesco Arcangeli, economist at the EEF industry trade body, warned that the manufacturers were worried about a "perfect storm" building from Brexit and a European slowdown.

“EU manufacturing PMI is also trending downwards and getting ever closer to the 50 contraction threshold. Germany moved to negative territory for the first time in more than four years and Italy remained below-50 for the fourth month in a row. Italy has now officially entered technical recession while Germany is teetering above it by an inch. This is bad news for UK exporters, with the risk of a cliff-edge Brexit increasing and global trade headwinds brewing, manufacturers will be concerned at the possibility of a perfect storm,” he said.

Adding to the gloomy prospects for global growth, China's Caixin/Markit manufacturing purchasing managers’ index for January came in at 48.3, down from 49.7 in December, marking its worst reading since February 2016 and missing expectations for a reading of 49.5.

However, there was hope provided for the market from the latest developments between the US and China, after President Trump said on Thursday that he will meet with Chinese President Xi Jinping soon to seal a deal on trade.

Speaking at the White House during a meeting with Chinese vice premier Liu He following two days of trade talks between US and Chinese delegates, Trump said he was optimistic that the two nation could reach "the biggest deal ever made".

The next big focus for the day will be the US non-farm payrolls report, unemployment rate and average earnings, all due at 1330 GMT. The jobs report is expected to show an increase of 165,000 in January compared to the 312,000 jobs that were added in December.

Meanwhile, the unemployment rate is expected to hold steady at 3.9%, while yearly average earnings are forecast to be unchanged at 3.2%.

Although the government shutdown is not expected to have a direct impact on the non-farm payrolls figure, market analyst Craig Erlam at Oanda said "it would take quite a horrible number to grab people’s attention, with investors most likely shrugging off the data as an anomaly".

In UK corporate news, Paddy Power Betfair rallied after saying it had bought an initial 51% controlling stake in Georgian betting outfit Adjarabet for £101m, adding that it expected to snap up the rest of the company within three years.

Exhibitions, events and business intelligence group Informa edged up as it announced the sale of its Life Sciences Media Brands portfolio to US-based healthcare, education and market research company MJH Associates for just over $100m.

Euromoney rose as it said on that trading between 1 October and 31 December 2018 was in line with board expectations and its outlook is unchanged.

UK energy supplier SSE was a touch weaker after saying it was selling 49.9% of its Scottish Stronelairg and Dunmaglass wind farms to Greencoat UK Wind and an unnamed UK pension fund for £635m. Greencoat was a just a touch weaker.

Glencore was on the back foot as it emerged that the commodities giant was in a standoff with the Democratic Republic of Congo over plans to separate uranium from cobalt mined in the country. Glencore's production report showed it unearthed more copper, cobalt and nickel in the fourth quarter of 2018 compared to the quarter before, while zinc, lead, gold and silver dipped.

TalkTalk tumbled as it reported further good growth of customer numbers in the third quarter but trimmed its full-year profit guidance due to IFRS 15 timing adjustments and investment growth.

Plastic packaging company RPC Group, which now has both Apollo Global Management and US packaging group Berry Global vying for its attention, slipped as it said third-quarter operating profit was broadly flat on the previous year.

In broker note action, Plus500 rallied on the back of an upgrade to ‘add’ at Peel Hunt, while Rio Tinto was lifted to ‘add’ at AlphaValue, but Intertek was downgraded to ‘hold’ at Jefferies.

Close Brothers was knocked lower by a downgrade to ‘sell’ at Citi, while Rentokil was boosted by an upgrade to ‘buy’ by the same outfit.

Market Movers

FTSE 100 (UKX) 7,004.88 0.52%
FTSE 250 (MCX) 18,780.03 0.36%
techMARK (TASX) 3,391.24 0.52%

FTSE 100 - Risers

Evraz (EVR) 514.20p 3.21%
Smurfit Kappa Group (SKG) 2,272.00p 3.18%
Melrose Industries (MRO) 173.50p 2.88%
Hargreaves Lansdown (HL.) 1,678.00p 2.76%
Paddy Power Betfair (PPB) 6,435.00p 2.71%
3i Group (III) 871.60p 2.59%
Halma (HLMA) 1,434.00p 2.43%
Admiral Group (ADM) 2,117.00p 2.22%
Coca-Cola HBC AG (CDI) (CCH) 2,614.00p 2.19%
NMC Health (NMC) 2,632.00p 2.17%

FTSE 100 - Fallers

Fresnillo (FRES) 980.80p -2.41%
Kingfisher (KGF) 220.30p -1.08%
Severn Trent (SVT) 1,983.00p -0.78%
BT Group (BT.A) 230.60p -0.77%
Tesco (TSCO) 221.50p -0.72%
Land Securities Group (LAND) 859.32p -0.68%
Barclays (BARC) 157.22p -0.61%
Vodafone Group (VOD) 137.90p -0.49%
British Land Company (BLND) 570.64p -0.48%
Intertek Group (ITRK) 4,887.50p -0.42%

FTSE 250 - Risers

Plus500 Ltd (DI) (PLUS) 1,596.00p 3.97%
Kaz Minerals (KAZ) 616.20p 3.84%
IP Group (IPO) 109.40p 3.21%
G4S (GFS) 200.90p 2.74%
Weir Group (WEIR) 1,540.00p 2.33%
IMI (IMI) 979.00p 2.30%
Euromoney Institutional Investor (ERM) 1,268.00p 2.26%
Amigo Holdings (AMGO) 248.15p 2.10%
Clarkson (CKN) 2,610.00p 1.95%
Man Group (EMG) 145.30p 1.86%

FTSE 250 - Fallers

TalkTalk Telecom Group (TALK) 104.10p -6.72%
Premier Oil (PMO) 71.35p -3.52%
Contour Global (GLO) 164.29p -2.21%
F&C Commercial Property Trust Ltd. (FCPT) 127.25p -2.12%
NewRiver REIT (NRR) 216.00p -2.04%
Greencore Group (GNC) 189.10p -2.02%
Greencoat UK Wind (UKW) 131.36p -1.82%
Superdry (SDRY) 508.00p -1.55%
Close Brothers Group (CBG) 1,463.00p -1.48%
Petrofac Ltd. (PFC) 542.40p -1.38%