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London open: Stocks make modest recovery as sterling strength caps gains
London stocks rose in early trade on Friday as worries receded about rising US interest rates following two days of heavy selling, but a firmer pound meant UK markets underperformed their European peers.
At 0840 BST, the FTSE 100 was up 0.4% to 7,034, versus gains of at least 0.9% for each of the main European indices, as sterling pushed up 0.2% against the dollar to 1.3254 and 0.1% versus the euro to 1.1422 amid reports that Brexit negotiations are going well and a breakthrough could be achieved by Monday.
Neil Wilson, chief market analyst at Markets.com, said it’s now less about whether the government and the EU can strike a deal and more about whether Theresa May will get any agreement that works with the EU through parliament.
“Likely DUP opposition on any Northern Ireland backstop deal and ERG opposition among the Conservatives could scupper the deal. This opens up the likelihood of fresh uncertainty and any deal-based rally in sterling may not last,” he said.
More broadly, the concerns about rising US interest rates that sparked this week’s global equity markets rout were assuaged a little after US inflation data for September revealed a slowdown on Thursday.
“US CPI dropped from 2.7% in August to 2.3% in September, and this was well received by investors as they are now a little less fearful the Federal Reserve will press ahead with their monetary tightening policy,” said CMC Markets analyst David Madden.
Meanwhile, Chinese trade figures out overnight showed that the country’s surplus with the US jumped to a record high of $34.13bn.
In UK corporate news, hedge fund manager Man Group racked up strong gains after saying its funds under management edged up to $114.1bn from $113.7bn in the past three months. There were net inflows of $0.4bn despite the previously announced $2.2bn infrastructure mandate redemption.
Elsewhere in the sector, Ashmore advanced as it recorded net inflows of $1.9bn in the first quarter of its financial year as clients looked to take advantage of price volatility across emerging markets. The FTSE 250 fund manager grew assets under management by $2.5bn during the three months ended 30 September, up 3% to $76.4bn.
Technical products group Diploma rallied as it announced the acquisition of Actios SAS, the parent company of Gremtek Group, for an undisclosed sum.
Logistics warehouse specialist Tritax Big Box ticked up as it announced it was investing £89.3m in a new National Distribution Centre at Midlands Logistics Park in Corby.
House of Fraser owner Sports Direct gained after saying it was buying the Frasers department store in Glasgow for £95m.
Great Portland Estates nudged lower after signing signed a £450m unsecured revolving credit facility with six existing relationship banks.
On the broker note front, Paddy Power was lifted to ‘hold’ at Berenberg, while DCC was initiated at ‘buy’ at HSBC. Chemring was cut to ‘underweight’ at Barclays and Victrex was downgraded to ‘underweight’ at Morgan Stanley. ASOS was upgraded to ‘neutral’ from ‘underperform’ by Credit Suisse.
