ADVFN Morning London Market Report: Wednesday 9 January 2019

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London open: Stocks rise on China-US trade hopes; Sainsbury’s slips

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London stocks rose in early trade on Wednesday, taking their cue from upbeat sessions in the US and Asia amid growing hopes that the latest round of US-China trade talks and hopes that moves Westminster have lowered the chance of a no-deal Brexit, although Sainsbury’s bucked the trend after a disappointing update.

At 0820 GMT, the FTSE 100 was up 0.8% at 6,915.17.

The US-China trade talks being extended into a third day was being interpreted by the markets as a sign of progress, said London Capital Group analyst Jasper Lawler “Comments coming from both parties continue to indicate that the talks are, so far going ‘very well’.

“A deal is likely to still be a long way off, with many twists and turns still to overcome along the way. However, the extension is a step in the right direction, sending a signal that the two sides are in serious negotiations and are working hard to resolve the issues.”

In currency markets, sterling was up 0.2% against the dollar at 1.2736 and down 0.1% versus the euro at 1.1109 as the Brexit withdrawal bill returns to Parliament to be debated for four days ahead of the House of Commons vote on 15 January.

Overnight, Prime Minister Theresa May suffered what could well be the first of many defeats from opponents of a no-deal Brexit as MPs backed by 303 votes to 296 a cross-party amendment that would limit the scope for tax changes following a no deal unless authorised by MPs.

“If a no-deal is increasingly ruled out by Parliament the pound could find itself supported moving towards the vote, even as uncertainty of what comes next remains high,” said Lawler.

In corporate news, housebuilder Taylor Wimpey rallied after saying full year results would be in line with expectations as the housing market “remained stable” despite uncertainties caused by Brexit. In a trading statement for the last calendar year, it said total home completions increased by 3% to 14,947, including joint ventures.

Fashion brand Ted Baker, which was recently rocked by harassment claims against founder Ray Kelvin, rose sharply as it posted a 12.2% jump in sales over the Christmas period thanks to online strength.

Bakery chain Greggs – which launched its controversial vegan sausage roll last week – was the standout performer on the FTSE 250 as it bumped up its full-year profit guidance and hailed a strong finish to last year.

Retailers were also in focus outside the FTSE 350, with Majestic Wine, Shoe Zone, Topps Tiles, Mothercare and Sosandar all releasing updates. Shoe Zone outshone the rest with its full year results sending the shares marching 13% higher.

Softcat, a provider of IT infrastructure products and services, surged after saying in a very brief update that it is now “materially ahead” of where it expected to be at this stage of the year.

On the downside, Sainsbury’s slipped as it reported a fall in revenues over the past 15 weeks due to a slump in general merchandise sales, which the grocer blamed on cautious customer spending and a decision to reduce Black Friday promotions.

Total sales fell 0.4% in the third quarter ending 5 January, with like-for-like sales excluding fuel down 1.1%. City analysts had forecast a 0.3% dip in LFL sales after the 0.2% gain in the first quarter and 1.0% in the second.

Neil Wilson, chief market analyst at Markets.com, said: “At a time of gently rising inflation and improving real wages Sainsbury’s ought to be enjoying growth in group sales. There have been for some time question marks over the store offering and presentation, which is starting to look like a persistent problem. Following the Argos takeover and proposal to merge with Asda, there is a clear sense management is taking its eye off the basics, albeit grocery sales did rise 0.4%.

“Overall, clearly the discounters are having a big impact, but with the exception of a mega tie-up with Asda it’s hard to see what Sainsbury’s is doing to combat them effectively.”

In broker note action, Serco was lifted to ‘buy’ at Citi and Auto Trader was initiated at ‘hold’ by Jefferies.

BHP was cut to ‘sell’ at Deutsche Bank, while HSBC was downgraded to ‘underweight’ at Barclays and Prudential was cut to ‘sell’ at Societe Generale.

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