LONDON MARKET MIDDAY: Pound Slides After Disappointing UK Growth Data

LONDON (Alliance News) - The FTSE 100 got off to a strong start to the week, with London's ...

Alliance News 11 February, 2019 | 11:55AM
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LONDON (Alliance News) - The FTSE 100 got off to a strong start to the week, with London's overseas earnings-heavy stock index boosted by a weaker pound on the back of UK growth figures.

The FTSE 100 was 35.58 points higher, or 0.5%, at 7,106.76 at midday. The FTSE 250 was up 81.65 points, or 0.4%, at 18,734.53, and the AIM All-Share was up 0.1% at 906.10.

The Cboe UK 100 was up 0.4% at 12,068.18, while the Cboe UK 250 was up 0.2% at 16,714.29 and the Cboe UK Small Companies up 0.3% at 11,151.63.

The pound tumbled after official figures revealed the UK economy grew slowly in the final quarter for 2018, posting its worst result for the year as a whole since 2009.

The pound was quoted at USD1.2900 at midday, down from USD1.2937 late Friday.

The economy grew just 0.2% in the final three months of 2018 on the quarter before, down 0.4% in the month of December alone. While this quarterly performance was in line with economist expectations, it was down from the 0.6% posted for the third quarter.

On a year-on-year basis, UK GDP grew 1.3% in the fourth quarter. This represented a slowdown in annual growth from 1.6% in the third quarter, and below analyst expectations for 1.4% growth.

For 2018 as a whole, the Office for National Statistics said the UK economy grew by 1.4%, weakest since 2009.

"Putting all of this together, we agree with the Bank of England's latest assessment that growth will stay around 0.2% during the first quarter. This says to us that a rate hike during the first half of the year looks very unlikely," said James Smith, economist at ING.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were up 0.9% and 0.8% respectively at midday.

In the US, Wall Street is called for a higher open with the Dow Jones and S&P 500 pointed up 0.4%, while the Nasdaq is seen gaining 0.5%.

Sentiment was lifted at the start of the week as a delegation from the US traveled to China on Thursday in a bid to resolve the ongoing trade dispute between Washington and Beijing.

The delegation led by US Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer will take part in two days of talks ahead of a March 1 deadline to resolve the trade dispute.

The talks will be preceded by deputy-level negotiations beginning on February 11, the White House said.

Among the big issues are US allegations of Chinese theft of intellectual property and market access for US companies.

"An acknowledgement from Trump that no meeting is planned with Xi later this month has been widely taken as a signal that a deal is unlikely to be achieved, with best hopes now being that enough progress is made to warrant an extension to the deadline and avoid further tariffs. An agreement was always going to be very difficult within the 90 day period so if an extension is agreed on the back of promising progress then it's still encouraging," commented Oanda senior market analyst Craig Erlam.

As well as a weaker pound on Monday, TUI was helping to bolster the FTSE 100 as it attempted to rebound from last week's losses.

After issuing a profit warning late on Wednesday last week, the stock closed down 19% on Thursday and fell a further 4.3% on Friday. On Monday, TUI was up 4.5%, the best performer in the FTSE 100.

TUI now expects adjusted earnings before interest, taxes, depreciation and amortisation for its financial year ending in September to be broadly stable on the record performance in the prior year of EUR1.17 billion.

"Consequently, we are not reiterating our guidance of at least 10% [at a compound annual growth rate] in underlying Ebitda at constant currency for the three years to FY20," the company said.

At the bottom of the index was medical devices maker Smith & Nephew, down 3.5% after the Financial Times reported the firm is in discussions to acquire US surgical instruments maker NuVasive in a deal worth over USD3 billion.

San Diego, California-based NuVasive makes equipment for spinal surgery, as well as bone implants. The FT cited "people with direct knowledge of the talks". It said the exact terms of the discussions could not be learned and talks may still fall apart.

Royal Bank of Scotland was down 1.9% after Morgan Stanley cut the lender to Equal Weight from Overweight. Meanwhile, Irish broker Davy started the bank with a Neutral rating.

"RBS should enter 2019 with welcome clarity regarding its investment case and go-forward momentum following further restructuring progress, efficiency gains as well as a resolution to the most significant legacy factors. Despite best efforts, this clarity is undermined by the uncertain economic outlook," said Davy.

In the FTSE 250, telecommunications firm TalkTalk Telecom was down 1.9% after HSBC cut its rating on the stock to Reduce from Hold.

Also lower following a broker rating downgrade was housebuilder Bovis Homes, down 1.5% after Liberum cut its rating on the firm to Hold from Buy.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
Smith & Nephew PLC 1,916.50 GBX 1.00
TUI AG 777.40 GBX 4.10 -
TalkTalk Telecom Group PLC 102.40 GBX 1.79 -
Bovis Homes Group PLC 1,038.00 GBX 0.97 -
The Royal Bank of Scotland Group PLC 184.65 GBX 1.37
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