London midday: Stocks stay down as Sainsbury's slumps after CMA blocks Asda merger
London stocks were off earlier lows but still in the red by midday on Thursday, dented by ex-divs, weak housebuilders, disappointing quarterly numbers from Barclays and news that Sainsbury's merger with Asda has been blocked, although there was some good news on retail sales.
The FTSE 100 was down 0.4% at 7,445.47, while the pound was off 0.2% against the dollar at 1.2874 and flat versus the euro at 1.1567.
On the political front, Prime Minister Theresa May escaped another attempt to unseat her after the Conservative powerbrokers voted against a change in party rules that would have opened the door to a fresh leadership challenge.
However, her reprieve was short-lived as furious pro-Brexit MPs demanded a clear timetable for her departure. Graham Brady, chair of the party's powerful 1922 committee, which represents backbench MPs, said the group had asked May for “clarity” around her future as speculation grew in Westminster that she would attempt to get her thrice-defeated Withdrawal Agreement through parliament again.
Meanwhile, the latest figures from the Confederation of British Industry showed that retail sales rose for the first time in five months in April.
The balance of retailers reporting year-on-year growth in sales volumes came in at +13 from -18 in March, when it suffered its biggest drop in 17 months. Analysts had been expecting a reading of zero.
CBI chief economist Rain Newton-Smith said: "It’s encouraging to see retailers with more of a spring in their step than in recent months. The recent pick up in real wages is a welcome support to the sector, making the pound in people’s pockets stretch that bit further.
"However, this month’s sales growth will have been distorted by the later timing of Easter, and falling sales in clothing and department stores underline how challenging underlying conditions remain.
"The Brexit extension means an economic crisis has been avoided, for now. However, uncertainty continues to drag on consumer confidence, and many retailers report an impact on their sales. Politicians now owe it to the country - its businesses and people - to come together in a total spirit of compromise, setting aside all party political lines, and agree a way forward to avoid a no deal Brexit."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the rise in the reported sales balance to its highest level since November is another encouraging sign that the Brexit saga hasn’t discouraged households from increasing spending in line with their rising incomes.
"Admittedly, the CBI’s survey was carried out between March 28 and April 16, so it doesn’t cover the crucial Easter vacation period," he added.
In equity markets, housebuilders were the standout losers after Taylor Wimpey hailed a "good" start to the year despite wider macroeconomic uncertainty but said margins will be slightly lower this year due to greater build cost inflation.
Russ Mould, investment director at AJ Bell, said the step-up in the level of cost inflation, which has been steady for the last few years at between 3% and 4%, is "troubling".
"This spells danger for the company’s level of profitability, particularly when you consider that asking prices are flat quarter-on-quarter.
"Guiding for a second-half weighting to its financial performance is never likely to inspire confidence - it’s often a precursor to a profit warning, while a reference to a ‘stable’ housing market is conservative in industry speak.
"All in all, this statement will create legitimate concerns about Taylor Wimpey’s prospects as well as shaking the foundations of the wider sector."
The sector was also hit by a series of downgrades by broker Shore Capital, which cut its stance on Barratt Developments, Bellway, Bovis Homes, Persimmon, Redrow, Crest Nicholson and Taylor Wimpey.
Sainsbury's was under the cosh as the Competition and Markets Authority blocked its proposed £10bn merger with Asda on the grounds that it would leave shopper worse off.
Neil Wilson, chief market analyst at Markets.com, questioned where Sainsbury's will go from here.
"Sainsbury's is the squeezed middle, losing market share to discounters and simultaneously losing out to more premium brands," said Wilson. "While Aldi and Lidl consistently gain market share and Tesco rebounds, Sainsbury’s is feeling the pinch. The worry is that it had no credible plan except this merger."
Barclays was also in the red after it posted a 10% drop in first-quarter profit as total income also fell amid tougher times for its corporate and investment bank division, and said it might have to cut costs further to meet returns targets.
RBS was weaker as chief executive Ross McEwan resigned after five and a half years in the role.
Ex-dividends weighed on London's equity markets, with Legal & General, William Hill, Glencore, Antofagasta, Wood Group, Informa, Rolls-Royce, Spirax-Sarco, Weir, Greggs, Petrofac, IWG and Fresnillo all in the frame.
On the upside, Sirius Minerals racked up strong gains as it signed a major new European supply and distribution agreement, while Meggitt rallied as it reported a 9% jump in first-quarter organic revenue.
Market Movers
FTSE 100 (UKX) 7,445.47 -0.35%
FTSE 250 (MCX) 19,939.54 -0.27%
techMARK (TASX) 3,580.17 -0.19%
FTSE 100 - Risers
Carnival (CCL) 4,069.00p 1.73%
Bunzl (BNZL) 2,347.51p 1.14%
Smith (DS) (SMDS) 363.10p 0.92%
Ferguson (FERG) 5,458.00p 0.89%
Auto Trader Group (AUTO) 574.80p 0.88%
GlaxoSmithKline (GSK) 1,550.80p 0.67%
St James's Place (STJ) 1,133.50p 0.67%
WPP (WPP) 917.40p 0.66%
Kingfisher (KGF) 264.30p 0.65%
NMC Health (NMC) 2,701.00p 0.63%
FTSE 100 - Fallers
Legal & General Group (LGEN) 274.30p -5.25%
Sainsbury (J) (SBRY) 215.99p -4.68%
Taylor Wimpey (TW.) 185.75p -3.38%
Antofagasta (ANTO) 929.60p -2.98%
Glencore (GLEN) 325.05p -2.69%
Barclays (BARC) 162.00p -2.63%
Micro Focus International (MCRO) 1,936.00p -2.37%
Royal Bank of Scotland Group (RBS) 250.70p -2.34%
Fresnillo (FRES) 732.40p -2.11%
Persimmon (PSN) 2,287.00p -1.89%
FTSE 250 - Risers
Sirius Minerals (SXX) 21.84p 4.10%
TBC Bank Group (TBCG) 1,560.00p 2.36%
Aston Martin Lagonda Global Holdings (AML) 1,000.00p 2.04%
IP Group (IPO) 101.00p 2.02%
Meggitt (MGGT) 533.82p 1.84%
IntegraFin Holding (IHP) 389.60p 1.82%
Kier Group (KIE) 354.60p 1.72%
Domino's Pizza Group (DOM) 265.30p 1.69%
Greene King (GNK) 688.20p 1.56%
GVC Holdings (GVC) 662.60p 1.41%
FTSE 250 - Fallers
Funding Circle Holdings (FCH) 237.50p -15.18%
Acacia Mining (ACA) 154.10p -4.23%
William Hill (WMH) 162.10p -4.20%
Redrow (RDW) 606.00p -3.96%
Indivior (INDV) 41.40p -3.72%
Saga (SAGA) 58.70p -3.61%
Essentra (ESNT) 427.80p -3.21%
Amigo Holdings (AMGO) 245.50p -3.16%
Sabre Insurance Group (SBRE) 277.18p -2.91%
Crest Nicholson Holdings (CRST) 389.00p -2.90%