London close: FTSE stops the rot, pound makes late jump
London's blue chip stocks arrested their recent decline and outperformed their smaller siblings on Tuesday as resources companies provided a lift to offset a rise Italian and US bond yields.
The FTSE 100 finished up just over four points at 7,237.59, while the mid-caps of the FTSE 250 dropped 97 points or 0.5% to 19,549.6, close to a six-month low.
Sterling, which had earlier been in the red, made a late surge on reports of progress in Brexit talks. The pound was up 0.4% versus the dollar to 1.3144 and up 0.4% to 1.1441 on the euro, its highest against the single currency since mid June.
Progress on Brexit negotiations was such, reported DowJones Newswires, that diplomats were suggesting that divorce terms could be settled by Monday. UK and EU officials would look to outline the future trade relationship by November, though some differences still remained on the Irish border, with the EU expected to sketch out its views on the future relationship next week.
Earlier, the yield on the 10-year US Treasury note jumped to a new seven-year high above 3.25% amid continuing strong US economic data.
"Rising rates are a double whammy for stocks - higher corporate debt costs, a lower premium to hold riskier assets against safe haven Treasuries," said Neil Wilson, chief market analyst at Markets.com.
"The question is do rates rise further from here? A confluence of factors mean US yields could continue to climb with the Fed tightening for longer, its balance sheet being reduced and a huge issuance of debt to fund the tax cuts in the US. But if anything, the US economy just looks stronger and stronger and this yield story is not a reflection of fears of it being a bubble, but of greater confidence in growth."
Meanwhile, the yield on Italy's 10-year government bond hit a new four-and-a-half year high of 3.63% as finance minister Giovanni Tria gave a downbeat assessment to parliament of the country's fiscal outlook and said he wanted to have constructive talks with Brussels after the European Commission said it was concerned about Italy's budget plans.
Investors were also digesting news that the International Monetary Fund has downgraded its forecast for global growth for this year and the next due to trade tensions, rising interest rates and political uncertainty. The IMF said it now expects the global economy to grow by 3.7% this year and the next, down from a previous forecast of 3.9% growth for both years.
Data released overnight by the British Retail Consortium showed that UK retail sales grew at their weakest pace in five months in September. Sales were up 0.7% compared to 1.3% growth the month before, while like-for-like retail sales for the month were down 0.2% on September last year compared to a 0.2% increase in August.
Miners provided a big boost to the Footsie, with heavyweight cabal of Anglo American, Rio Tinto, Glencore, BHP and Antofagasta all recovering from losses the day before after the People's Bank of China loosened lending requirements for domestic banks.
Joshua Mahony, market analyst at IG, said much of the short-term volatility will be dictated by affairs in China and the pathway of US trade negotiations.
"To a large degree [China's] decision to cut the reserve ratio highlights a fear that the trade war could continue for some time yet. However, for the miners, a dramatic increase in the amount of cash available for banks to loan out will drive investment, in turn benefitting companies whose product is demanded in times of growth."
Aviva rose after announcing that chief executive Mark Wilson was stepping down with immediate effect but would stay with the life insurer until April 2019 to help with the transition.
Baker Greggs racked up strong gains after it posted a rise in third-quarter like-for-like sales as new products proved popular with customers and the FTSE 250 baker backed its expectations for the full year.
Ferrexpo rallied on the back of a stronger third-quarter production update, while Unite Group ticked up after saying that full-year rental growth is in line with its target of 3-3.5% and announcing the issue of a 10-year £275m senior unsecured bond.
Oil engineer Wood Group advanced after saying it had won a string of new midstream sector contracts across the US with a combined revenue of $250m.
Great Portland Estates pushed higher after selling a multi-let office and retail building at 27/35 Mortimer Street, W1 for £38.5m.
Direct Line gained after an upgrade to 'buy' at Deutsche Bank, while Royal Mail was proving to be pretty resilient, reversing earlier losses despite downgrades from both RBC Capital Markets and HSBC.
Sage suffered heavy losses after a downgrade to 'underweight' by Barclays, while WPP was in the red after losing its long held contract as Ford Motor Company's lead creative agency, which has gone to its fierce rival Omnicom's BBDO agency.
In other broker news, Schroders was upgraded to 'buy' at Berenberg, while Joules Group was initiated at 'buy' and N Brown and Quiz were initiated 'hold' by the same outfit. Telecom Plus surged after an upgrade to 'buy' at Peel Hunt.
Market Movers
FTSE 100 (UKX) 7,237.59 0.06%
FTSE 250 (MCX) 19,549.60 -0.49%
techMARK (TASX) 3,351.39 -0.84%
FTSE 100 - Risers
Royal Mail (RMG) 353.00p 4.31%
Evraz (EVR) 564.80p 3.18%
Anglo American (AAL) 1,693.60p 2.77%
Tesco (TSCO) 215.30p 2.48%
Schroders (SDR) 3,047.00p 2.22%
Burberry Group (BRBY) 1,881.00p 1.68%
Rio Tinto (RIO) 3,793.50p 1.61%
Antofagasta (ANTO) 825.80p 1.48%
Glencore (GLEN) 326.15p 1.38%
BHP Billiton (BLT) 1,641.00p 1.37%
FTSE 100 - Fallers
Paddy Power Betfair (PPB) 6,205.00p -5.00%
Smurfit Kappa Group (SKG) 2,736.00p -4.34%
Smith (DS) (SMDS) 447.20p -2.55%
Vodafone Group (VOD) 150.72p -2.50%
Just Eat (JE.) 626.80p -1.95%
Rentokil Initial (RTO) 320.40p -1.90%
London Stock Exchange Group (LSE) 4,356.00p -1.67%
DCC (DCC) 6,540.00p -1.58%
Ocado Group (OCDO) 777.80p -1.49%
Lloyds Banking Group (LLOY) 57.30p -1.48%
FTSE 250 - Risers
Telecom Plus (TEP) 1,136.00p 8.46%
Greggs (GRG) 1,052.00p 4.57%
Hunting (HTG) 769.50p 3.88%
Cairn Energy (CNE) 233.60p 3.73%
Energean Oil & Gas (ENOG) 598.00p 3.10%
Centamin (DI) (CEY) 93.50p 3.05%
Go-Ahead Group (GOG) 1,658.00p 2.79%
RPC Group (RPC) 800.00p 2.62%
Wood Group (John) (WG.) 776.00p 2.51%
Safestore Holdings (SAFE) 514.00p 2.49%
FTSE 250 - Fallers
Contour Global (GLO) 175.30p -9.69%
Capita (CPI) 127.15p -4.75%
CYBG (CYBG) 290.20p -4.66%
Cranswick (CWK) 3,096.00p -4.51%
Virgin Money Holdings (UK) (VM.) 351.70p -4.41%
Thomas Cook Group (TCG) 50.75p -4.15%
Lancashire Holdings Limited (LRE) 530.00p -4.07%
Ascential (ASCL) 371.60p -3.94%
Sirius Minerals (SXX) 25.44p -3.78%
SSP Group (SSPG) 679.40p -3.78%