London close: Stocks drop even as risk of no-deal Brexit recedes

Wed 05 Dec 2018

LONDON (SHARECAST) - (Sharecast News) - London stocks finished in the red on Wednesday, albeit with the pound clawing back some ground as some traders now saw a lower chance of a no-deal Brexit.
The FTSE 100 was down 1.44% or 100.92 points at 6,921.84, while sterling was up 0.19% against the dollar at 1.27354, recovering some poise after falling to its lowest level against the greenback in 17 months following Theresa May's hat-trick of Brexit defeats in Commons. Against the euro, the pound was up 0.11% at 1.1225.

London's second-tier index on the other hand gave back just 0.32% to finish the day at 18,271.10.

The government was defeated on two contempt of Parliament motions for not publishing the full legal advice on the withdrawal agreement and MPs approved an amendment from Tory backbencher Dominic Grieve to give them a greater say if the Brexit proposal is defeated in next week's meaningful vote.

Yet the pound found some support as May's defeats in Parliament cut the chances of a no-deal Brexit and boosted the prospect of a second referendum. Traders also pointed to a note by JPMorgan, which upped its odds on the possibility of Britain remaining in the EU to 40% from 20%. JPM also said it now sees the chances of a no-deal Brexit at 10%, reduced from 20%, and an orderly Brexit at 50% now versus 60% before.

Comments from pro-Brexit International Trade Secretary Liam Fox also provided a boost, as he told a parliamentary committee that no Brexit was now a possibility.

David Cheetham, chief market analyst at XTB, said: "While the first blow for May was no doubt humiliating, the second is far more significant as it now means that MPs would have to vote in favour of a no-deal Brexit for it to occur; meaning this outcome is far less likely.

"This clarifies some confusion surrounding what the default outcome is should parliament not support any deal before the Article 50 window expires and in essence means the chances of leaving without a deal are greatly reduced while at the same time also raising the prospect of not leaving at all. This is a clear positive for the pound as a no-deal Brexit is seen by many as the most negative outcome for sterling."

Grim services data was also being digested by investors as activity in the sector in November was reported to have softened to its weakest level for more than two years in November, while confidence levels also slumped.

The IHS Markit/CIPS UK services purchasing managers' index dropped from October's reading of 52.2 to 50.4, the lowest since July 2016. A reading below 50 indicates a contraction.

A number of services sector companies said Brexit had prompted clients to delay investment decision, and there had been a slowdown in new business growth. There has now been a slowdown in new business growth for three consecutive months. Confidence for the year ahead showed the weakest degree of positive sentiment since July 2016.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, cautioned that purchasing manager's indices did not always give an accurate picture, with the post-referendum slowdown overestimated by many.

But he added: "The further decline in the services PMI in November to its lowest level since the panic immediately after the referendum provides the clearest indication yet that Brexit uncertainty is draining momentum from the economy."

Equipment rental firm Ashtead suffered the heaviest losses on the FTSE 100, tracking losses on Wall Street overnight as investors quailed over the flattening of the US treasury yield curve. Yield curve inversion has been a harbinger of recession since the second world war.

"The group derives the majority of its revenue in the US, and the fears traders have in relation to the state of the US economy are likely to be a factor in the decline," said CMC Markets analyst David Madden.

Hargreaves Lansdown was also in the doldrums after a downgrade to 'underweight' at Morgan Stanley, while CYBG dropped on the back of a downgrade to 'underperform' at Bank of America Merrill Lynch.

Wood Group, Hunting and Weir were under pressure after the world's largest oilfield services provider, Schlumberger, warned on Tuesday that its fourth-quarter North America revenues were likely to drop by 15% sequentially due to steeper-than-expected price declines in hydraulic fracturing.

Wood Group was also in focus after it was awarded a $43m contract by an unnamed large-cap midstream company to construct 80 miles of steel pipeline in west Texas.

On the upside, housebuilders rallied, with Berkeley, Barratt Developments, Persimmon and Taylor Wimpey the top four performing stocks on the FTSE 100 as the prospect of a second referendum became more real.

Strategists at Barclays said in a note on Wednesday that while investors are broadly positioned for the withdrawal agreement to be rejected, there is see scope for material share price moves in the housebuilding sector, particularly in the event the deal is passed (a clear positive response), or if it receives an emphatic rejection by Parliament (a clear negative response).

"Broadly speaking, if we compare the long-term prospective price-to-earnings ratios of the housebuilders with their current multiples, we conclude that the market is pricing in a 26-35% cut in earnings per share," the strategists said.

Shire rallied as Japan's Takeda Pharmaceutical shareholders approved its 46bn takeover of the London-listed pharmaceutical group. Shire shareholders are due to vote on the deal later in the day.

Transport operator Stagecoach surged after its first-half numbers came in ahead of expectations and guidance was upgraded and tour operator Thomas Cook was in the green for a change, having suffered heavy losses in the aftermath of its profit warning last week.

Market Movers

FTSE 100 (UKX) 6,921.84 -1.44%
FTSE 250 (MCX) 18,271.10 -0.32%
techMARK (TASX) 3,411.18 -1.20%

FTSE 100 - Risers

Persimmon (PSN) 1,983.36p 7.05%
Berkeley Group Holdings (The) (BKG) 3,423.00p 5.98%
Barratt Developments (BDEV) 473.80p 5.10%
Taylor Wimpey (TW.) 138.60p 4.22%
Royal Mail (RMG) 316.78p 3.11%
Shire Plc (SHP) 4,690.50p 3.09%
easyJet (EZJ) 1,122.00p 2.47%
Royal Bank of Scotland Group (RBS) 222.00p 2.40%
British Land Company (BLND) 571.60p 1.93%
International Consolidated Airlines Group SA (CDI) (IAG) 620.40p 1.91%

FTSE 100 - Fallers

Ashtead Group (AHT) 1,672.50p -5.83%
Melrose Industries (MRO) 166.35p -5.05%
NMC Health (NMC) 3,196.00p -5.05%
Hargreaves Lansdown (HL.) 1,891.00p -4.45%
Wood Group (John) (WG.) 625.80p -4.10%
Glencore (GLEN) 285.50p -3.87%
Pearson (PSON) 926.60p -3.56%
GlaxoSmithKline (GSK) 1,458.80p -3.45%
St James's Place (STJ) 994.00p -3.31%
Experian (EXPN) 1,884.00p -3.29%

FTSE 250 - Risers

Thomas Cook Group (TCG) 34.40p 51.41%
Stagecoach Group (SGC) 177.00p 15.08%
Redrow (RDW) 498.20p 6.07%
Bellway (BWY) 2,647.00p 5.72%
Go-Ahead Group (GOG) 1,693.00p 5.02%
IP Group (IPO) 121.00p 5.00%
Inmarsat (ISAT) 429.60p 4.60%
Capita (CPI) 109.55p 4.33%
Travis Perkins (TPK) 1,139.00p 4.21%
SIG (SHI) 110.20p 4.05%

FTSE 250 - Fallers

Indivior (INDV) 94.04p -8.27%
Vivo Energy (VVO) 114.82p -5.87%
Spire Healthcare Group (SPI) 108.80p -5.64%
Plus500 Ltd (DI) (PLUS) 1,400.00p -4.70%
UDG Healthcare Public Limited Company (UDG) 643.00p -4.67%
Playtech (PTEC) 417.10p -4.29%
Aveva Group (AVV) 2,440.00p -4.24%
Ultra Electronics Holdings (ULE) 1,365.00p -4.13%
Weir Group (WEIR) 1,436.00p -3.98%
Hunting (HTG) 545.00p -3.96%
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