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London open: Stocks drop as May faces cabinet showdown over Brexit deal
London stocks fell in early trade, with sterling little changed after Theresa May agreed the text of a draft withdrawal agreement with the EU.
At 0830 GMT, the FTSE 100 was down 0.7% to 7,002.98, trading at its worst levels since the end of October, while the pound was off 0.1% against the dollar at 1.2966 and flat versus the euro at 1.1494 as May faced a cabinet showdown over her Brexit deal.
The PM has called a meeting of senior ministers at Downing Street at 1400 GMT to approve the draft agreement, amid newspaper reports of criticism from Brexit-supporting MPs.
Neil Wilson, chief market analyst Markets.com, felt the cabinet is likely to pass May’s deal, but with assault from both sides of the house and Brexit divide, it seems impossible parliament will vote it through.
“Both sides see this as capitulation. In trying to please everyone, Mrs May satisfies no one. The DUP-Conservative deal surely cannot survive this? The intractable Irish border question remains just that; insoluble.
“Sterling volatility is expected to rise as the near term upside and downside risks crystallise. With the market waiting patiently for the deal, the pound has barely budged. Now the real hard work starts as we seem to be either heading to a no deal, fresh election and/or another referendum. This suggests further pressure on the pound.”
Indeed, sterling-dollar ‘implied volatility’, measuring the protection bought by investors against sharp swings in the currency, has jumped to its highest since the general election in June last year and is on course for its biggest weekly rise in at least five years, according to data from Refinitiv.
On the macro front, inflation figures will be eyed at 0930 GMT, as the Office for National Statistics publishes the latest consumer price index data, along with retail and producer prices.
Among individual shares, British Land lost ground as the property development and investment company said it swung to a net loss in the first half.
Residential property business Grainger was in the red even as it reported a 26% improvement in its adjusted earnings for the year ended 30 September and said it has agreed to buy the entire share capital and shareholder loans in GRIP REIT from its joint venture partner, APG, for £396m.
Aerospace and defence group Cobham slipped despite saying that it performed as expected in the first 10 months of the year and backing its overall expectations for 2018.
Prudential slipped slightly despite saying that profit growth accelerated in the third quarter of the year, including at its M&G Prudential arm as it prepares to demerge.
Direct Line was hit by a downgrade to ‘hold’ at Deutsche Bank and Ferguson was under the cosh following a cut to ‘neutral’ at Bank of America Merrill Lynch. Rio Tinto was also weaker after a downgrade to ‘sell’ at Liberum.
Global technology company Smiths Group swam against the tide after saying it expects to meet full year expectations and announcing plans to separate Smiths Medical from the group and concentrate on growing as an industrial technology group.
Energy firm SSE advanced despite posting a 41% drop in interim profit, as it announced the creation of a renewable energy business.
Workspace pushed higher as it posted a drop in interim reported pre-tax profit but boosted its dividend by 20%, while Intu Properties nudged up as it pushed back the deadline for a consortium to make an offer for the company.
Micro Focus rallied on the back of an upgrade to ‘buy’ at Goldman Sachs, while Next was boosted by an upgrade to ‘buy’ at HSBC.
Burberry was upgraded to ‘add’ at Alphavalue, Smiths was upgraded to ‘overweight’ at JPMorgan and Tullow Oil was boosted to ‘hold’ at Panmure Gordon.
