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London open: Stocks steady as sterling pops higher on Brexit delay hopes
London stocks were steady in early trade on Wednesday, with sterling on the rise as traders bet on an extension to Article 50.
At 0845 GMT, the FTSE 100 was flat at 7,151.26, while the pound was up 0.5% against the dollar and the euro at 1.3139 and 1.1641, respectively, as MPs prepare to vote later on the prospect of leaving the EU with no deal after they voted down May’s Brexit plan by 149 votes overnight.
Spreadex analyst Connor Campbell said investors were likely working on the assumption that this week will see MPs vote to extend Article 50.
“There is arguably less drama surrounding Wednesday’s free vote on whether MPs have an appetite for a no-deal Brexit than there was around Tuesday’s eventual deal-rejection, the expectation being that the significant majority of them don’t,” Campbell said. That then would set up Thursday’s ballot on shifting the exit date.
“If that’s what MPs want to do, the ball would be punted into the EU’s court, the UK needing a unanimous agreement from the Union’s 27 members if it is to delay Brexit beyond March 29. There could also at some point be a third vote on May’s incredibly unpopular withdrawal deal, if the PM senses she can get it over the line by scaring those intransigent Tory Brexit hardliners.”
Goldman Sachs said it continues to see a 55% chance that a close variant of the Prime Minister’s Brexit deal is eventually ratified, after a three-month extension of Article 50.
“During that period, rather than substantive changes being made to the current Withdrawal Agreement, we think it will be the opportunity cost associated with rejecting the existing Withdrawal Agreement that begins to bind on the deal’s detractors. That perceived cost is likely to entail the prospect of ongoing membership of a customs union with the EU, the prospect of unilaterally revoking Article 50, or the prospect of a second referendum including the option to remain.”
Amid all the Brexit shenanigans, Chancellor Philip Hammond’s Spring Statement, which is due at around 1230 GMT, is likely to be overshadowed.
With the main budget now in autumn, no major tax or spending changes are expected but investors will be watching out for figures from the Office for Budget Responsibility amid expectations it will downgrade its growth forecast for this year.
Pantheon Macroeconomics said it expects negligible forecast revisions.
“We think the OBR will cut its forecast for public borrowing this year to £23.5bn from £25.5bn. But it also will revise down its forecast for GDP growth this year. As a result, it probably will revise up its forecast for borrowing in 2019/20 to about £33.5bn, from £31.8bn. This will absorb only a small fraction of the Chancellor’s fiscal headroom, which he will keep in reserve for now, but spend in the Budget later this year.”
Ahead of the budget, the government announced temporary tariff plans in the event of a no-deal situation. As it stands, 80% of imports are tariff-free. However, under a temporary scheme in the event of a no-deal Brexit, 87% of imports by value would be eligible for zero-tariff access. The plan would exclude some agricultural products such as beef, lamb, pork and dairy.
The government also said it would remove all border checks between Ireland and Northern Ireland bar a “small number of measures strictly to comply with international obligations, protect the biosecurity of the island of Ireland, or to avoid the highest risks to Northern Ireland business”.
In corporate news, Standard Life Aberdeen was the standout gainer as the asset manager posted a dip in full-year pre-tax profit but a 19% rise in IFRS profit attributable to equity holders as it abandoned its co-chief executive set-up, with Martin Gilbert stepping down to leave Keith Skeoch in charge.
Morrisons rallied as it declared a special dividend on top of its full-year payout after a third consecutive year of strong sales and profit growth.
Doorstep lender Provident Financial – which is currently fending off a hostile £1.3bn bid from smaller rival Non-Standard Finance – gained after saying it swung to a statutory pre-tax profit of £90.7m in 2018 from a loss of £147.9m the year before.
B&Q owner Kingfisher was the worst performer on the FTSE 100 after a downgrade to ‘hold’ at Sitfel.
Elsewhere, Hikma Pharmaceuticals was weaker as its full-year core operating profit missed analysts’ expectations and cyber security firm Avast saw its shares drop as its annual organic growth came in light of expectations and CEO Vince Steckler announced his retirement.
JD Sports Fashion was under pressure after German sportswear maker Adidas said it expects supply chain issues to dent first-half sales growth.
