FTSE LIVE: Footsie on course for another record close, but pound sinks after PM dithers over whether UK is heading for a hard Brexit

Mark Shapland For This Is Money

15:30: The Footsie was cruising towards another record close, despite US stocks opening up lower at the start of the earnings season on Wall Street.

With an hour to go the FTSE 100 index was up 14.2 points at 7,224.2, slightly lower than it had been at lunch.

The Dow Jones industrial average fell 60 points at the bell, with Goldman Sachs contributing the most losses. Proctor & Gamble and Coke were also down after downgrades from analysts.

The Dow had hit a record close on Friday, while the S&P 500 and the Nasdaq also clocked up all-time highs following a late rise in Apple and other technology stocks.

Theresa May said she does not accept the terms hard and soft Brexit, while Angela Merkel says the UK may not be allowed access the Single Market

Wall Street has rallied since Donald Trump won the US election in November as investors bet he will introduce business-friendly policies.

But the rally has led to lofty valuations – with the S&P is trading at about 17 times expected earnings, compared to its average of 14. 

That could make investors cautious as they gear up for the fourth-quarter earnings season. 

The first peek into how companies fared last quarter will be provided later this week by big US banks, including JPMorgan , Bank of America and Wells Fargo.

S&P 500 companies overall are expected to post a 6.1 percent increase in profit in the quarter, according to Reuters.

Bank stocks were among the biggest losers this session

Bank stocks were among the biggest losers this session

Michael Hewson, analyst at CMC Markets, said: ‘After stalling within a whisker of 20k on Friday the Dow opened slightly lower today as investors mulled over whether further gains in US markets are sustainable in the longer term.

‘There is also the fact that we will get to see some important earnings announcements later this week from the main US banks, and if these disappoint we could well see some profit taking start to kick in, particularly given that we’ve seen big gains in this sector in the last six months, with JP Morgan up 37 per cent, Bank of America up 69 per cent and Wells Fargo up 13 per cent, with a good proportion of those gains since November 8th.’

Back in London it has been a poor session for bank stocks, with Royal Bank of Scotland rooted to the bottom of the leaderboard.

Its shares are off 2.8 per cent, or 6.6p, at 225.7p.  Lloyds is also down 1.8 per cent, or 1.2p, at 1,036.5p, despite the Government selling another stake in the bank.

Michael Hewson, at CMC Markets, explained: ‘Banking stocks have also slipped back a touch with Lloyds Banking Group lower after the government sold off another part of its stake in the bank, taking it below 6 per cent, and bringing ever closer the day the bank is completely back in the private sector. 

‘This morning’s further sales also serves to highlight the contrast to Royal Bank of Scotland, whose problems still remain very much front and centre given it still has to arrive at a settlement with the US Department of Justice over mortgage backed securities mis-selling.

‘The weakness in banking stocks may also be down to a slight softening in yields and a narrowing of interest rate differentials between short and long term debt on government debt markets.’

But the major story this session has been the pound’s dramatic fall over comments Prime Minister Theresa May made yesterday Brexit.

This afternoon May tried to clarify the Government’s position on Hard or Soft Brexit.

She said: ‘I’m tempted to say that the people who are getting it wrong are those who print things saying I’m talking about a hard Brexit, (that) it is absolutely inevitable there’s a hard Brexit.

‘I don’t accept the terms hard and soft Brexit. What we’re doing is going to get an ambitious, good and best possible deal for the United Kingdom in terms of… trading with and operating within the single European market.’ 

At the same time German Chancellor Angela Merkel has also waded in stating that if the UK does not accept the EU’s ‘four freedoms’ in Brexit negotiations, attention will need to turn to restricting Britain’s access to the single market.

13:00: The Footsie remained in comfortable territory at lunch, driven higher by internationally focused stocks following a sharp fall in the pound. 

The FTSE 100 index was up 21.7 points at 7,232.7, on course for its eighth straight record close.

Mark Ward at Sanlam Securities UK said: ‘The FTSE is still currency-led, with Brexit uncertainty over the weekend grinding it higher. I don’t think these markets will go lower anytime soon.’

On the up: Glencore was the biggest gainer after positive comments from Barclays on the outlook for the mining industry

On the up: Glencore was the biggest gainer after positive comments from Barclays on the outlook for the mining industry

As a result stocks with a large proportion of overseas earnings rose to the top of the FTSE 100, led by miners.

Glencore was the biggest gainer after positive comments from Barclays on the outlook for the mining industry. 

Shares were up more than 2 per cent, or 6.7p to 295.2p, after the bank said that China’s ongoing infrastructure spending splurge, coupled with potential fiscal stimulus from Western countries, made the sector’s valuation look reasonable.

Anglo American lifted 2 per cent at 1,154.5p and BHP Billiton added 1.5 per cent to 1,334.5p.

Tobacco stocks also rose, led by British American Tobacco, up 1.4 per cent at 4,639.5p, and Imperial Brands up 1.2 per cent higher at 3,593.0p.

On the FTSE 250 Ashmore was the biggest faller, down 6.7 per cent at 279.2p after analysts at Barclays said the emerging markets-focused fund manager was vulnerable to outflows following Donald Trump’s election as US president.

William Hill was another heavy faller, down 3.8 per cent at 286.4p after the bookmaker said profits would fall to £260million for the year, down from £291.4million last year, after a number of horse racing and football results went against it.

But the session has been dominated by sterling’s collapse following hints from Prime Minister Theresa May that Britain may opt for a so-called ‘hard Brexit’. 

Sterling plunged to a two-month low against the US dollar – dropping 1.2 per cent to $1.214 – in response to an interview with May on Sunday, in which she stated that importance would be given to gaining full control over immigration during divorce negotiations with the European Union.

The pound was also down 0.9 per cent versus the euro at €1.154.

Connor Campbell, financial analyst at Spreadex, said the markets were reading May’s comments as a move towards leaving the European single market in favour of World Trade Organisation rules.

Naeem Aslam, analyst at ThinkMarkets added: ‘The political crisis is brewing and you can see that when you look at pound. The UK government is playing with fire and creating more uncertainty. Last year, we said that the British pound has tendency of touching the mark of 1.18 against the dollar and we are still maintaining our call.’

‘The government needs to be consistent with their message so that market can digest all the bad news and move on with it.’. 

The pound has dropped around 18 per cent against the US dollar and 10 per cent versus the euro since the June 23 vote, as traders expect the British economy to be significantly weaker once it quits the EU. 

On the oil markets, the price of Brent crude slid 1.7 per cent – or 97 cents – to $56.13 a barrel, as traders became concerned about the Opec cartel’s ability to drive through production cuts.  

08:20: The Footsie was quick off the block on Monday morning, jumping higher after a strong session overnight in Asia.

In opening deals the FTSE 100 index was up 21.6 points at 7,232.5 – a fresh intraday high. On Friday it closed up 14.74 points at 7210.05 – yet another record finish for the buoyant London market.  

The Santa rally from December has continued into January, driven by what is expected to be a new era for US politics and European politics in 2017.

Issue: UK equity markets have been flying but the pound remains worryingly weak

Issue: UK equity markets have been flying but the pound remains worryingly weak

Overnight the Hang Seng in Hong Kong was marginally up and the Shanghai Composite rose by 0.4 per cent. South Korea’s Kospi edged higher by 0.2 per cent, while Australia’s ASX/200 finished 0.9 per cent up. 

But the pound is feeling the pain as stocks rise.

Already this morning it has dropped by 0.8 per cent against both the dollar and the euro following Theresa May’s Sky News interview at the weekend. 

In her first major interview of 2017, May told Sky News that: ‘Often people talk in terms as if somehow we are leaving the EU but we still want to kind of keep bits of membership of the EU. We are leaving. We are coming out. We are not going to be a member of the EU any longer.’

The Prime Minister’s comments were read as falling decidedly on the ‘hard’ end of the Brexit spectrum, with ‘control of borders’ likely to be prioritised over continued access to the single market.

This left sterling at a two-month low against both the dollar and the euro. 

The pound is likely to drop around 5 per cent to $1.15 against the dollar after May triggers Article 50 in March, starting the two-year countdown to leaving the EU, according to a Reuters poll of more than 60 foreign exchange strategists

In the UK, the week ahead will be dominated by Christmas trading updates from the country’s largest retailers. Analysts anticipate that results will be mixed. 

In focus today will be UK Halifax House Price data which is seen holding its ground to the benefit of the housebuilders which already got a boost past week from Persimmon’s positive trading update and several broker upgrades. 

Elsewhere global oil prices fell as increased exports from Iran undermined efforts by other oil producers to curb a global fuel supply overhang.  

Stocks in focus in London include:  

LLOYDS BANKING – Britain has cut its stake in the bank to below 6 per cent as it attempts to return the lender to full private ownership this year.

BOVIS HOMES – Boss chief executive David Ritchie had stepped down with immediate effect, days after it warned on profit because it failed to complete the number of homes it expected at the end of 2016.    

UK SUPERMARKET OPERATORS – Britain’s three quoted major supermarkets are expected to report this week that they enjoyed solid Christmas trading, though investor concern about a potential squeeze on consumer spending in 2017 means the focus is on their outlooks.  

Data: 

Germany industrial production at 7am

Halifax House Price Index at 8.30am

Eurozone unemployment at 10am

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