London midday: Stocks flat as UK economy stalls; packaging stocks dented
London stocks had erased earlier small losses to trade flat by midday on Wednesday as investors digested news that the UK economy stalled in August.
The FTSE 100 was steady at 7,234.49, while the pound was 0.1% firmer against the dollar and the euro at 1.3154 and 1.1447, respectively, following a batch of data and reports that the UK and the EU have made progress in talks about the Irish border backstop.
Reuters cited diplomatic sources in Brussels as saying that the EU no longer expects a new proposal from Britain for the Ireland-UK border fix after Brexit, with negotiators from both sides looking to narrow the differences together in direct talks. News that a group of 30-40 Labour MPs could support the government's deal also provided the market some extra reassurance.
Meanwhile, data from the Office for National Statistics showed that UK economic growth was weaker than expected in August, but growth in previous months was revised up a touch.
Gross domestic product was flat in August compared to the preceding month, when economists had expected growth of at least 0.1%. However, GDP grew 0.7% in the three months to August compared to the three months to May, maintaining growth on a rolling three-month basis. This was higher than expected after growth in each of June and July was revised up by 10 basis points.
Meanwhile, industrial production growth continued to recover, growing 0.2% in August versus the 0.1% from the month before, with year-on-year output up 1.3% versus the 1% forecast. This was despite another 0.2% monthly decline in manufacturing production.
The index of services was disappointingly flat in August compared to July, while construction output shrank 0.7% month-on-month.
David Cheetham, chief market analyst at XTB, said there is a danger that now the ONS has started releasing monthly growth updates the focus will be too short-term and market participants will miss the bigger picture.
"Short-term events can cause volatility in monthly updates and present a misleading representation and therefore a better read can still be found in the quarterly figures. In light of this the three month increase of 0.7% represents a pretty impressive recovery from the earlier parts of the year where weather wreaked havoc with economic activity, but having said that it is still below historic performance."
Elsewhere, volatile bond yields continued to unnerve, with yields in Italy marching back down after earlier rising on comments from Deputy Prime Minister Matteo Salvini that there will be no changes to the government's budget. The earlier rise in yields was also attributed to an article in Italian newspaper La Stampa in which a Moody's senior economist said the country's budget plan was a mistake that will be reflected in Italy's rating.
In UK corporate news, paper and packaging companies DS Smith, Smurfit Kappa and Mondi suffered heavy losses, dragged lower after Goldman Sachs downgraded US-based rival International Paper to 'neutral' from 'buy'.
Burberry was also a bigger faller as Morgan Stanley downgraded its stance on the European luxury goods sector to 'underweight', while British American Tobacco fell as chief marketing officer Andrew Gray quit after a 32-year career, just two weeks after being overlooked for the top job.
Rank Group was under the cosh after the Gambling Commission said it must pay £500,000 for failing to follow rules that protect problem gamblers.
On the upside, PageGroup edged up after saying it expects its full-year operating profit to be marginally ahead of consensus, while HSBC rose even after it agreed to pay a $765m settlement in the US over its sale of mortgage-based securities.
SSE pushed up as its merger with Npower was provisionally cleared by the UK's Competition and Markets Authority.
In broker note action, Dixons Carphone gained on the back of an upgrade to 'buy' at HSBC, Rio Tinto was raised to 'buy' at Goldman and Sage was upgraded to 'hold' at Deutsche Bank. Ocado was lifted to 'equalweight' at Barclays and Soco International was upgraded to 'outperform' at RBC Capital Markets.
Rightmove was bumped up to 'buy' at Liberum and Hunting was cut to 'equalweight' at Barclays.
FTSE 100 - Risers
BT Group (BT.A) 237.30p 3.76%
Kingfisher (KGF) 259.20p 2.90%
Marks & Spencer Group (MKS) 295.20p 2.75%
Barclays (BARC) 172.32p 2.72%
Sage Group (SGE) 559.40p 2.34%
Lloyds Banking Group (LLOY) 58.43p 1.97%
Next (NXT) 5,576.73p 1.95%
United Utilities Group (UU.) 711.20p 1.95%
Royal Bank of Scotland Group (RBS) 250.00p 1.83%
Vodafone Group (VOD) 153.44p 1.81%
FTSE 100 - Fallers
Smith (DS) (SMDS) 417.50p -6.64%
Mondi (MNDI) 1,821.50p -6.37%
Smurfit Kappa Group (SKG) 2,578.68p -5.75%
Burberry Group (BRBY) 1,783.50p -5.13%
Rentokil Initial (RTO) 309.10p -3.19%
Halma (HLMA) 1,316.00p -3.16%
Rolls-Royce Holdings (RR.) 901.40p -3.05%
Antofagasta (ANTO) 800.60p -2.98%
Croda International (CRDA) 4,725.13p -2.92%
Pearson (PSON) 796.80p -2.90%
FTSE 250 - Risers
Just Group (JUST) 82.33p 4.88%
Dixons Carphone (DC.) 159.65p 4.01%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 109.50p 3.30%
Bank of Georgia Group (BGEO) 1,766.50p 3.11%
Daejan Holdings (DJAN) 5,916.70p 3.08%
TP ICAP (TCAP) 278.26p 3.06%
CLS Holdings (CLI) 216.93p 3.05%
AA (AA.) 102.25p 2.76%
Dunelm Group (DNLM) 547.50p 2.72%
Metro Bank (MTRO) 2,724.00p 2.56%
FTSE 250 - Fallers
Contour Global (GLO) 161.86p -7.67%
Sirius Minerals (SXX) 24.34p -4.32%
Games Workshop Group (GAW) 3,405.00p -4.22%
Spire Healthcare Group (SPI) 127.00p -3.79%
Synthomer (SYNT) 498.60p -3.75%
Wizz Air Holdings (WIZZ) 2,407.00p -3.53%
TI Fluid Systems (TIFS) 208.00p -3.26%
Vesuvius (VSVS) 602.50p -3.21%
Victrex plc (VCT) 2,925.33p -3.13%
Electrocomponents (ECM) 664.60p -2.86%