London close: Stocks rise as HK worries recede; sterling gains on Brexit delay hopes
London stocks rose on Wednesday, with Asia-focused Prudential and Standard Chartered lending support as worries about unrest in Hong Kong receded, while sterling rallied amid hopes that a no-deal Brexit can be avoided.
The FTSE 100 closed up 0.6% at 7,311.26, while sterling was up 0.9% against the dollar at 1.2192, having fallen below $1.20 on Tuesday, and 0.5% firmer versus the euro at 1.1058, as MPs debated a bill to delay the Brexit deadline to the end of January if a deal with the EU is not reached by 31 October.
Prime Minister Boris Johnson has said that if the bill is passed, he will call a general election on 15 October, but this will require approval from two-thirds of the House of Commons. The Labour Party has already said it would not support a general election unless legislation is in place to block a no-deal Brexit.
Spreadex analyst Connor Campbell said the fact that sterling is gaining "despite the still present threat of a general election shows just how desperate the currency is to avoid Britain crashing out of the EU without an agreement in place".
"Some uncertainties, after all, are more palatable than others," he said.
Sticking with Brexit, the Bank of England said the worst-case no-deal scenario was now "less severe". It expects such an outcome to dent growth by 5.5% by 2023, down from a previous estimate of 7.5%.
Signs the UK is at risk of slipping into recession failed to dent the mood, as the latest reading on the services sector showed that growth practically ground to a halt in August as Brexit concerns took their toll.
The IHS/Markit CIPS services purchasing managers' business activity index fell to 50.6 last month from 51.4 in July, missing expectations for a reading of 51.0 and only a touch above the 50.0 mark that separates contraction from expansion.
The new orders balance fell to 50.8 from 53.0 and the employment balance declined to 50.5 from 52.6, while confidence about activity in the next 12 months hit its lowest level since July 2016 amid concerns about the impact of political uncertainty on client decision-making.
Chris Williamson, chief business economist at IHS Markit, said: "After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter."
Sajid Javid's spending review was also in focus, with the Chancellor accused by Shadow finance minister John McDonnell of "grubby electioneering" as he pledged an extra £13.4bn of public spending in 2020/21. Javid claimed he could use a fall in the cost of public borrowing to fund his pledges and called it "the end of austerity".
In equity markets, Asia-focused stocks were the standout gainers, with Prudential, Standard Chartered and Burberry all higher after Hong Kong's leader, Carrie Lam, withdrew the controversial extradition bill that has prompted months of protests.
IG analyst Chris Beauchamp said: "Investors are hopeful that the Hong Kong situation has been defused, although a response from the protestors is not yet forthcoming. But the potential removal of a significant geopolitical flashpoint is undeniably benign for risk appetite, and may see Asian markets extend their gains in the second half of this week."
Miners advanced as copper and iron ore prices rose, with Glencore, Antofagasta, Anglo American and BHP all higher. The sector also got a lift as Deutsche Bank said it was due a rebound after the summer selloff.
Royal Bank of Scotland ended flat as it said a last minute higher-than-expected spike in claims for payment protection insurance claims would result in an extra charge of £600m to £900m in the third quarter.
On the downside, housebuilder Barratt Developments fell. It posted an 8.9% increase in full-year pre-tax profit but revenue came in slightly lower than expected at £4.8bn and the company said it expects to grow volumes towards the lower end of its medium-term target range in FY20.
Software company Kainos slumped as it said full-year results should be in line with current market expectations but expressed caution about public-sector spending in the UK amid Brexit turmoil.
Homeware retailer Dunelm suffered heavy losses as it posted a 23.5% jump in full-year pre-tax profit but struck a cautious note on the outlook amid Brexit-related uncertainty.
FTSE 100 - Risers
Prudential (PRU) 1,397.50p 3.60%
Marks & Spencer Group (MKS) 193.10p 3.40%
Antofagasta (ANTO) 860.80p 3.26%
Smith (DS) (SMDS) 339.70p 3.03%
Standard Chartered (STAN) 643.40p 2.98%
Glencore (GLEN) 242.85p 2.92%
Evraz (EVR) 499.30p 2.67%
Johnson Matthey (JMAT) 3,080.00p 2.56%
Anglo American (AAL) 1,818.00p 2.54%
Burberry Group (BRBY) 2,240.00p 2.47%
FTSE 100 - Fallers
Barratt Developments (BDEV) 599.60p -3.60%
Admiral Group (ADM) 2,095.00p -1.60%
Berkeley Group Holdings (The) (BKG) 3,826.00p -1.44%
Ocado Group (OCDO) 1,332.00p -0.89%
United Utilities Group (UU.) 810.20p -0.86%
AstraZeneca (AZN) 7,381.00p -0.66%
Micro Focus International (MCRO) 1,106.80p -0.63%
Centrica (CNA) 69.88p -0.63%
Relx plc (REL) 1,998.00p -0.60%
Vodafone Group (VOD) 156.96p -0.60%
FTSE 250 - Risers
Aston Martin Lagonda Global Holdings (AML) 535.20p 7.47%
Vivo Energy (VVO) 130.80p 7.39%
Metro Bank (MTRO) 281.00p 6.76%
Kaz Minerals (KAZ) 400.80p 5.39%
Premier Oil (PMO) 83.60p 5.21%
IP Group (IPO) 58.70p 5.20%
Greencore Group (GNC) 226.40p 4.33%
Equiniti Group (EQN) 213.60p 4.09%
Capita (CPI) 131.25p 4.08%
Spirent Communications (SPT) 190.40p 4.04%
FTSE 250 - Fallers
Kainos Group (KNOS) 440.00p -11.11%
Dunelm Group (DNLM) 799.50p -9.20%
Restaurant Group (RTN) 127.20p -6.06%
Barr (A.G.) (BAG) 617.00p -4.34%
Avast (AVST) 373.80p -3.11%
Centamin (DI) (CEY) 146.95p -3.04%
Ted Baker (TED) 937.50p -2.45%
NewRiver REIT (NRR) 169.60p -2.30%
Provident Financial (PFG) 384.30p -1.91%
Pets at Home Group (PETS) 230.60p -1.62%