London close: Stocks rally as sterling slumps on general election speculation
London stocks racked up strong gains on Monday as sterling slumped amid growing speculation about a general election and following the release of weak manufacturing data.
The FTSE 100 ended the day 1% firmer at 7,281.94 as the pound fell 0.8% versus the dollar to 1.2061 and 0.6% against the euro to 1.0999.
Chris Beauchamp, chief market analyst at IG, said: "It might be Labor Day in the US, but for UK investors it is a busy session. It looks increasingly like the UK is headed towards another election. Rebel Tory MPs and the Opposition will likely attempt to take control of events with an extension to the Brexit process, but this may play into the government’s hands, allowing them to announce an election if they lose the vote.
"The next few days promise to be a crucial moment for the UK’s political direction, but sterling is taking it badly, dropping against the dollar to towards the August low, a move that is unlikely to stop there. Anyone who thinks that an election will solve the UK’s political crisis has not been paying attention over the past three years."
As well as the weaker pound, stocks were boosted by a better-than-expected reading on China's manufacturing sector in August.
Caixin's factory sector purchasing managers' index rose from July's reading of 49.9 to 50.4, beating forecasts for a reading of 49.8 and pointing again to growth in the space. It was the strongest reading since March.
Nonetheless, while a gauge of the new orders received by companies was reportedly stable, the pace of decline in new export orders quickened and firms' confidence in the outlook 12 months ahead was "among the weakest in the series history".
On home turf, however, the news was less cheery, with the IHS Markit manufacturing purchasing managers’ index for August dropping to 47.4 from 48.0 in July, marking the softest reading in more than seven years, led by a drop in a sub-index tracking new orders.
Input prices climbed however, stoked by weakness in the pound, and as in China or on the Continent, manufacturing firms' confidence in the outlook for the year ahead was at multi-year lows.
"The renewed fall in the manufacturing PMI in August- to its lowest level since July 2012- indicates that support from another round of no-deal Brexit preparations currently is too modest to insulate U.K. producers from the global downturn," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"The UK’s PMI is only trivially above the Eurozone’s - 47.0 in August - and the former might even fall further, given that the new orders index slumped to 44.4, from 46.9 in July."
Although US markets were closed in observance of the Labor Day holiday, Sino-US trade relations remained in focus after President Trump said on Sunday that trade talks between the two were still set to go ahead in September.
Although they had been long and widely anticipated, a 15% US tariff on another $112.0bn-worth of Chinese exports kicked-in over the weekend, as did Chinese levies on US exports.
In London equity markets, AstraZeneca was the standout gainer after positive results from separate cardiovascular drug trials for its Brilinta treatment and Farxiga.
The Brilianta study showed that taking the drug along with aspirin reduced the risk of heart attack or stroke by 10% compared to taking aspirin alone. A separate trial revealed that Farxiga showed a 26% reduction in the incidence of cardiovascular death and the worsening of heart failure.
Dollar earners such as Experian and Diageo were on the front foot amid the weaker pound, while consumer goods giant Unilever was lifted by an upgrade to ‘buy’ at Goldman Sachs.
On the downside, software company Micro Focus was in the red again, having fallen sharply last week on the back of a profit warning.
Marks & Spencer also lost ground as Goldman Sachs reinstated coverage on shares of the retailer at ‘sell’ and amid worries about it dropping out of the FTSE 100 in the upcoming reshuffle.
FTSE 100 - Risers
AstraZeneca (AZN) 7,542.00p 3.06%
Experian (EXPN) 2,593.00p 2.98%
Intertek Group (ITRK) 5,584.00p 2.87%
Ocado Group (OCDO) 1,328.50p 2.55%
Diageo (DGE) 3,589.00p 2.44%
Bunzl (BNZL) 2,059.00p 2.29%
Tesco (TSCO) 224.20p 2.28%
Relx plc (REL) 2,011.00p 2.26%
3i Group (III) 1,120.50p 2.19%
Rentokil Initial (RTO) 459.30p 2.02%
FTSE 100 - Fallers
Micro Focus International (MCRO) 1,087.60p -1.91%
Marks & Spencer Group (MKS) 189.60p -1.38%
Just Eat (JE.) 775.80p -1.27%
Antofagasta (ANTO) 855.80p -1.18%
Smurfit Kappa Group (SKG) 2,522.00p -0.55%
BHP Group (BHP) 1,765.60p -0.42%
SSE (SSE) 1,146.50p -0.39%
Scottish Mortgage Inv Trust (SMT) 518.00p -0.38%
Berkeley Group Holdings (The) (BKG) 3,903.00p -0.36%
Evraz (EVR) 494.90p -0.28%
FTSE 250 - Risers
FDM Group (Holdings) (FDM) 795.00p 5.30%
Hays (HAS) 145.70p 4.07%
GVC Holdings (GVC) 647.40p 2.93%
Daejan Holdings (DJAN) 5,350.00p 2.69%
Plus500 Ltd (DI) (PLUS) 699.60p 2.64%
NewRiver REIT (NRR) 167.40p 2.57%
Pagegroup (PAGE) 429.20p 2.53%
Lancashire Holdings Limited (LRE) 696.00p 2.20%
Fisher (James) & Sons (FSJ) 2,035.00p 2.16%
4Imprint Group (FOUR) 2,840.00p 2.16%
FTSE 250 - Fallers
Intu Properties (INTU) 38.04p -6.65%
Provident Financial (PFG) 385.70p -4.36%
Wood Group (John) (WG.) 364.40p -3.32%
Metro Bank (MTRO) 261.60p -2.68%
Sports Direct International (SPD) 243.40p -2.33%
CLS Holdings (CLI) 234.00p -2.30%
Hammerson (HMSO) 222.00p -2.20%
Softcat (SCT) 1,019.00p -2.02%
Premier Oil (PMO) 79.18p -1.96%
Hunting (HTG) 448.20p -1.93%