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London open: Stocks track US and Asia higher, retailers slump on Debenhams warning
London stocks edged higher in early trade on Thursday, tracking strength in the US and Asia as investors eyed the latest reading on the UK services sector, although retailers were under the cosh following a profit warning from Debenhams.
At 0830 GMT, the FTSE 100 was up 0.2% to 7,684.34, while the pound was flat against the euro at 1.1244 and 0.1% firmer versus the dollar at 1.3523.
Sentiment was underpinned by positive sessions in the US and Asia. On Wall Street, the S&P 500 rose above 2,700 for the first time, while the Dow and the Nasdaq hit record highs. In Asia, shares were boosted by data showing that China’s services sector grew at its fastest pace in more than three years in December.
The Caixin/Markit services purchasing managers’ index rose to 53.9 last month from 51.9 in November, marking the best reading since August 2014 and beating expectations of 51.8. Meanwhile, the headline Caixin China Composite PMI came in at 53.0 from 51.6 the month before.
Investors will be eyeing the release of net lending, consumer credit, mortgage approvals and Markit’s services PMI for the UK.
Analyst Connor Campbell at Spreadex said: “December’s manufacturing and construction figures have already disappointed, while also managing to remain relatively strong compared to much of 2017. The services PMI is somewhat expected to buck the trend, with analysts forecasting a rise from 53.8 to 54.1 month-on-month – not a bad note to end 2017 on, but still a way away from October’s muscly 55.6 reading.”
The US ADP employment report at 1315 GMT will also be in focus ahead of Friday’s non-farm payrolls report.
Minutes from the Federal Reserve’s December meeting released late on Wednesday showed that some officials thought the three 25-basis points rate increases projected for this year might be too aggressive.
The minutes also suggested that the Fed will continue to take a gradual approach to lifting rates, although this could accelerate if the pace of inflation picks up. In addition, Fed officials discussed the possibility that President Trump’s tax changes could cause inflation pressures to rise.
In UK news, the latest survey from mortgage lender Nationwide revealed that, despite an above-expectation rise in December, house price growth slowed in 2017 and will barely rise this year. Prices were up 2.6% on the year, down from the 4.5% increase recorded in 2016.
Robert Gardner, Nationwide’s chief economist, said: “Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed.”
Meanwhile, London was the weakest region for the first time since 2004, with prices in the capital down 0.5%.
Gardner said: “The significant disparity in house prices across the UK has been a recurring theme in recent years. In this respect, 2017 saw the beginnings of a shift, as rates of house price growth in the south of England moderated towards those prevailing in the rest of the country.”
On the corporate front and in sharp contrast to Next‘s performance a day earlier, Debenhams shares fell more than 20% after issuing the first profit warning of 2018 as sales and “tactical promotional action” misfired in the crucial festive period. UK like-for-like sales fell 2.6% in the 17 weeks to 30 December and after cutting prices for many weeks in order to try and compete, gross margins for the six-month period are expected to be down around 1.5 percentage points on the prior year. Sports Direct, which owns 21% of Debenhams, was down 2.5%, while fellow retailers Marks & Spencer and Next were in the red.
Medical inhaler group Vectura dropped as it said 2017 full year revenue should be in line with expectations, adding that a strong second half delivered closing cash and cash equivalents of around £104m net of £1.4m outflows in respect of the £15m share buyback which started in November.
On the upside, NMC Health advanced after buying outstanding minority stakes in Fakih IVF and As Salama Hospital for a total of $218m.
Whitbread was in the black after it appointed former ITV and Royal Mail boss Adam Crozier as its new chairman, just as City chatter swirls about a potential break-up of the Premier Inn and Costa Coffee owner.
Actuator manufacturer Rotork gained as it appointed Kevin Hostetler as chief executive with effect from 12 March.
