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London open: EU deal report, central bank policy in focus
Sterling is extending its rebound from the day before after a report from Handelsblatt that the European Union might discuss offering the UK a two-year extension of its single market membership following Brexit, which in turn has served to knock the Footsie off its perch.
According to the German daily, the EU’s top Brexit negotiator, Michel Barnier, was to table that proposal at a meeting of EU ambassadors on Friday – although some analysts argued that there was little new in that piece of information.
As of 0831 BST, the Footsie was trading down by 0.41% or 30.75 points at 7,525.49, alongside gains of 0.4% for the pound in its cross against the US dollar to 1.3316.
On Thursday, the top flight index had notched up a fresh record high, even as traders waited on US consumer price data to be released also on Friday which might help consolidate expectations for a US central bank interest rate hike in December.
“Yesterday’s PPI data for September would also appear to suggest that price pressures are picking up and if today’s headline CPI number follows suit, then it would be a major surprise if US policymakers were to backtrack on a December rate rise now. It is expected that September CPI will see an uptick from 1.9% to 2.3%.
“For the moment markets are pricing a 76% probability of a move in December, they just aren’t so sure about how many are coming in 2018 and that’s the point,” said CMC Markets UK‘s chief market analyst, Michael Hewson.
The CPI figures would arrive amid a debate around the most probable policy path for the US central bank in 2018, with some – albeit admittedly only a few – economists of the belief that central bankers around the world may need to revisit their models in order to better take into account globalisation’s impact on levels of domestic inflation, among other factors.
Acting as a backdrop, the latest Chinese trade numbers published overnight revealed a pick-up in export growth from a 6.9% year-on-year clip in August to 9.0% for September (consensus: 10.9%). Similarly, import demand was stronger than anticipated, rising by 19.5% on the year (consensus: 16.5%), up from 14.4%.
“Today’s figures suggest that not only has strong foreign demand continued to prop up manufacturing activity in China but domestic demand remains resilient too,” said Julian Evans-Pritchard at Capital Economics.
Charges to weigh on GKN’s bottom line
GKN guided towards full-year profits before tax just slightly ahead of their 2016 level as a result of two significant “commercially sensitive” external claims and continuing headwinds at GKN Aerospace North America, with the latter expected to drag on the group’s trading margin. Those two claims were seen resulting in a charge of roughly £40m which would be incurred in the last three months of 2017. Third quarter trading at its aerospace arm was described as “disappointing”. Over at its Driveline unit on the other hand, sales were “well ahead” of global industrial production rates which were up 2%. Full-year margins at Driveline were now seen at a similar level as in 2016 due to one of the above claims.
Provident Financial has begun to staunch the blood flow at its doorstep lending business after two profit warnings earlier this year. For the full year the sub-prime lender still expects to make losses of £80-120m before exceptional costs, but said the changes made at its Home Credit business “have prevented any further deterioration in performance”, with collections in September recovering to 65% from the 57% in August.
Aviva agreed to sell its entire 49% shareholding in its joint venture in Taiwan, First Aviva Life, to Aviva’s joint venture partner First Financial Holding Company, it announced on Friday. The FTSE 100 insurance company said that, following a strategic review of Aviva Taiwan, it concluded that the business was not central to the group’s strategy to focus on markets where it can achieve scale and profitability or have a distinct competitive advantage. It said the transaction had a “negligible impact” on Aviva’s IFRS net assets, Solvency II capital position and IFRS operating profit.
Man Group reported solid growth in its funds under management on Friday, with the total standing at $103.5bn as at 30 September compared to $95.9bn on 30 June, and the board claiming rises of 28% in the year to date. The FTSE 250 investment management business said net inflows in the third quarter totalled $2.8bn, which were driven by “strong inflows” into alternative risk premia and emerging market debt strategies. Positive investment movement of $3.3bn was reported in the period.
