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London open: Footsie benefits as pound bows to political uncertainty
London stocks on Wednesday took up where they left off the previous afternoon, rising on the back of a pound that was taking a bruising from a new wave of political worries and upbeat updates from airline EasyJet and miner BHP Billiton.
The FTSE 100 jumped 39 points or 0.51% to 7,665.38 in the first hour of trading, with the pound down another 0.2% to 1.3086 against the dollar, after slumping the afternoon before as Theresa May battled to keep her government together amid various important Brexit votes in the House of Commons and the dollar was lifted by indications of continued interest rate rises from Fed chair Jerome Powell. Against the euro, the pound was up 0.1% to 1.1258.
Overnight, Brexiteers led by MP Jacob Rees-Mogg forced May to accept an amendment to her plans for a softer Brexit that commentators say will make it even more difficult for the European Union to accept her proposed customs arrangement. Confusingly the government lost to the Brexiters by winning the Commons vote 305 to 302.
“The strongly pro-EU House of Lords will probably reject the amendment,” said economist Kallum Pickering at Berenebrg, suggesting the amendment may not survive a second vote.
He added that the risk has risen that a significant number of Brexit hardliners will refuse to support May in crucial votes regardless of the consequences. “This may bring down her government and lead to snap elections unless parts of the opposition were to lend May a hand and bring her semi-soft Brexit through parliament.”
Prior to the vote, Tory whips had reportedly threatened rebels with a general election this summer if they defeated May’s customs plans.
Labour, meanwhile, pulled five points in front of the Conservatives in the polls, with support for a second Brexit referendum also rising to its highest level. A YouGov poll for The Times put Labour up two points to 41%, with the Tories down one to 36%.
The next obstacle for sterling will be inflation figures later in the morning. The consumer price index, due from the Office for National Statistics at 0930 BST, is expected to rise in June to 2.6% year on year, from 2.4% in May.
Having been softened up by a disappointing wage growth reading a day earlier, and then dragged lower by the latest bout of Brexit uncertainty, June’s inflation data would be closely examined in relation to the Bank of England’s monetary policy meeting in a fortnight, said market analyst Connor Campbell at SpreadEx.
“It’s still not completely clear what the Bank of England will do at August’s meeting, with convincing arguments both for and against a rate hike. Investors should get a bit more clarity with Wednesday’s inflation figures; forecasts suggest the CPI reading is set to bounce from 2.4% to 2.6% month-on-month, a rise that may push a few more MPC members over to the hawkish bench occupied by Andy Haldane, Michael Saunders and Ian McCafferty in June.”
In company news, EasyJet‘s took off on the back of third-quarter revenues rising 14% to £1.6bn, as passenger numbers grew 9.3%. The budget carrier upped full-year profits guidance to £550-590m, from the previous £530-580m. British Airways owner IAG was lifted in its wake.
Miner BHP Billiton was up after revealing fourth-quarter iron ore production rose 3% and raising 2019 guidance to +3%.
Building materials group CRH gave its shares a boost as it sold off its DIY business in the Netherlands and Belgium for €510m.
Going the other way, Ladbrokes owner GVC Holdings fell despite announcing a not-unsurprising boost from the World Cup in recent weeks that helped growth accelerate in the third quarter. Helped by 11% growth in the second quarter, group net gaming revenue grew 8% in the first half.
Smiths Group also fell despite reporting a return to growth with underlying revenue for the 11 months to 30 June up 3%. All divisions were expected to be in-line with full-year expectations, except for a fall for Smiths Medical amid a suspension of some products ahead of new EU 2020 regulations.
Plastics manufacturer RPC also slumped as it revealed revenue from continuing operations for its first quarter was up 5.8%, benefitting from the contribution from Astrapak, polymer price tailwinds and organic growth of 2.0%. This is down from revenue growth of 33% last year, when organic growth was 2.8%.
Shares in water and waste company Severn Trent leaked slightly lower as it reiterated full-year guidance, with no material change to business performance or outlook.
