FTSE 100 closes 43 points lower
Pound rebounds amid renewed hopes for Brexit deal
Wall Street mixed
5pm: Footsie closes in red as Brexit talks continue
FTSE 100 index closed in the red Wednesday as the strengthening pound hit the British blue-chip benchmark and its dollar earning members, while the Brexit clock continues to tick down.
Footsie closed down 43.7 points at 7,167. Its midcap cousin and more UK focused index FTSE 250 shed around nine points to 20,187.
While on Wall Street, markets were also generally lower, weighed by continuing fears over US, China trade and weak retail sales numbers.
The Dow Jones Industrial Average added around 20 points at 27,044, after being in the red from the open, while the S&P 500 index shed nearly two points and the tech-laden Nasdaq index dropped 18 points to 8,129.
Negotiations continue in Brussels ahead of the EU summit, which begins tomorrow, with mixed signals emerging over whether a deal is close or not. UK Prime Minister is meeting his cabinet and the DUP to discuss the latest.
"The EUs Donald Tusk, said the basic foundations of a Brexit deal are ready, which has lifted the mood, but some traders remain cautious because things in politics are moving so quickly. The Brexit game of cat and mouse is still going on, hence why European equity markets are mixed this afternoon," noted analyst David Madden, at CMC Markets.
3.35pm: Sterling bounces back as Brexit deal hopes resurface
Pound traders saw some optimism return in late-afternoon after noises coming out of negotiations suggested a Brexit deal could be back on the cards.
“Donald Tusk claimed that everything should be clear in seven to eight hours, while Irish Taoiseach Leo Varadkar reiterated his belief that an agreement may be possible, even if it requires an extension past October 31st to be fully worked out”, said Spreadexs Connor Campbell, although he added that the Northern Irish Democratic Unionist Party and the hardline Conservative Brexiter MPs remained “key question marks” as Boris Johnson will need their votes to give the deal a chance of getting through a vote in the House of Commons.
However, for now, the news put traders in high spirits and the pound inched 0.3% higher to US$1.2823 against the dollar.
However, sterlings renewed fortunes caused more problems for equities, with the FTSE 100 down 46 points at 7,166 at around 3.35pm.
2.45pm: US markets start lower
Wall Street saw a lower start on Wednesday as doubts over a US-China trade deal continued to linger over traders in New York.
Shortly after the opening bell, the Dow Jones Industrial Average shed 0.2% to 26,970, while the S&P 500 dropped 0.2% to 2,989 and the Nasdaq fell 0.34% to 8,120.
Aside from the geopolitical jitters, the American markets were also being weighed down by weaker than expected retail data for September, which reported that sales in the sector had fallen 0.3%, the first decline in seven months.
A 1% fall in car sales as well as a 0.7% decline in sales at gas stations, reflecting lower fuel prices, were the key downward markers, although weakness was widespread with department stores and internet retailers also reporting lower sales.
The figures are likely to cause concern that consumer spending, the backbone of the US economy, is beginning to slow down as the trade war and a more general malaise begin to bite harder.
The low start on Wall Street only added extra downward pressure on the FTSE 100, which in mid-afternoon trading was down 32 points at 7,180.
1.35pm: Wall Street points to lower open as US and China butt heads over Hong Kong
US markets are expected to open slightly lower on Wednesday morning as an escalating dispute between the US and China over Hong Kongs protest movement threatened to derail any chance of a trade deal between the worlds two largest economies.
Several bills backing the pro-democracy movement in the Chinese territory passed unanimously by lawmakers in the US House of Representatives on Tuesday and are now headed for the Senate.
The bill, which stipulates that the US government must annually review the status of civil liberties in Hong Kong for the city to retain its special trading status, could become by the end of the week, provided it is not vetoed by Donald Trump when it arrives on his desk for approval.
The move by US politicians has caused fury in Beijing, with the Chinese foreign ministry saying that if the legislation became law it would seek to implement countermeasures in response.
“We think its possible this bill will push China into a public show of defiance against US “interference”. That would mean cracking down on the HK protestors. Under that scenario, markets would be relieved if Chinas retaliation kept the trade pact intact. However, higher political uncertainty in Hong Kong would be a sizable downside risk”, said London Capital Groups Jasper Lawler.
Away from international political developments, US earnings season continues to steam ahead with more major firms due to report their third quarter numbers today.
One of the early winners in the pre-market session was Bank of America Corp (NYSE:BAC), which jumped 2.3% to US$30.42 after its Q3 profits fell less than expected while revenues increased unexpectedly.
A key stock in focus later on in the day will be streaming giant Netflix Inc (NASDAQ:NFLX), which is due to report its earnings amid concerns that a coming onslaught of rival services could damage its growth prospects.
Meanwhile, in London, the FTSE 100 was down 17 points at 7,194.
12.10pm: FTSE 100 struggles into lunchtime
By midday, the FTSE 100 was firmly in negative territory and had made little effort to escape over the course of the morning, down 15 points at 7,196 shortly before 12pm.
Traders are back in a cautious mood as domestically focused stocks wobbled anew on Brexit doubts, while the US and China seem set to continue butting heads.
Protests in Hong Kong are the latest niggle, potentially jeopardising the chances of a trade deal breakthrough despite positive noises from negotiations last week.
“The protests…will add another item to the list of issues the US and China are finding difficult to agree on, making the prospect of a quick deal between the two countries even less likely”, said Fiona Cincotta, senior market analyst at Cityindex.
“For a number of sectors including miners, oil firms and technology companies, this will eventually translate into lower income and share prices as the Chinese economy is already showing signs of slowing that are likely to be exacerbated even further over the coming months”, she added.
The biggest faller in the FTSE 100 at lunchtime was online car marketplace Auto Trader Group plc (LON:AUTO), which was down 3.4% at 531.2p as the latest UK inflation data pointed to a fall in the price of second-hand cars.
Meanwhile, the top riser for the morning session was consumer goods giant Unilever PLC (LON:ULVR) after a bullish note from Berenberg where the investment bank tagged the firm as one of its “top picks” in the household and personal care sector. The shares rose 1.5% to 4,638.5p in response.
On the currency markets, the pound had regained some of its losses against the dollar and was down 0.24% at US$1.2755 into lunchtime, however it was still a far cry from Tuesdays surge to nearly US$1.28 as traders continue to fret over whether a last-ditch Brexit deal can be secured before an EU summit tomorrow.
Cincotta said that while there was some indication that negotiators could be inching closer to a deal, it may be “slightly too optimistic” to interpret the developments as a Brexit resolution, as the proposals will still need to clear MPs in the Commons during a sitting this weekend.
10.50am: Sterling slides as Brexit deal hits the skids
The pound has fallen over half a per cent against the dollar to US$1.271 amid reports that the chances of a last-minute Brexit deal could be dying as talks stalled between the UK and the EU.
A report from Bloomberg said that negotiators saw a deal as impossible unless the UK moved its position, sending the pound lower less than a day after reports that a deal could be made in time for a crunch summit on Thursday sent sterling up to US$1.28.
David Madden at CMC Markets said the comments had “dashed hopes for the possibility of an agreement being reached soon” and that several currency dealers are now reversing their previous positive positions.
“The mood in relation to Brexit is less optimistic as the [Northern Irish Democratic Unionist Party] appear to be putting up resistance to any sort of arrangement that would treat Northern Ireland differently from Great Britain post Brexit. In addition, the EU want the UK to make further concessions”, he added.
Sterlings struggles did little to help the FTSE 100, which in mid-morning was 19 points lower at 7,193.
Domestically focused stocks are dragging the Footsie down, with fallers led by retailers Kingfisher plc (LON:KGF), Next PLC (LON:NXT) and J Sainsbury PLC (LON:SBRY), as well as financials, in the form of Hargreaves Lansdown PLC (LON:HL.), St James's Place Plc (LON:SJP), Standard Life Aberdeen Plc (LON:SLA) and London Stock Exchange Group PLC (LON:LSE).
9.50am: UK inflation stands pat at 1.7% in September
Inflation in the UK remained unmoved in September at 1.7%, the same level as August and below expectations of 1.8%.
The inflation rate is the lowest since December 2016 and was driven down by falling motor fuel costs as well as a decline in the prices of second-hand cars. It is also below the Bank of England's target of 2%, although Brexit is widely expected to be a more crucial factor in whether the central bank will decide to cut interest rates.
The weaker-than-expected figure, coupled with a small rise in unemployment shown yesterday, will raise fears that the UK economy is headed for a slowdown despite GDP figures last week having allayed fears of an imminent recession.
Good news for consumers – UK CPI Inflation unchanged at 1.7% in September, still the lowest rate since December 2016. The largest downward pressure came from falling Motor fuel and second-hand car prices. pic.twitter.com/2zWDGltKfb
— Suren Thiru (@Suren_Thiru) October 16, 2019
“A number of factors are keeping a lid on inflation: global growth appears to be slowing, and trade tensions have impacted demand globally. In addition, energy and commodity prices remain fairly benign for the most part. In spite of full employment in the UK, and real wage growth, inflation remains fairly steady and manageable”, said Andrew Evans, UK equity fund manager at Sanlam Investments.
However, traders are likely to shrug off the data as Brexit headlines continue to dominate sterlings movements, with ThinkMarkets Naeem Aslam saying that fears of a deal “slipping away” were piling pressure on the pound, which in early trading was down 0.36% at US$1.274 against the dollar.
Meanwhile, in the equity markets, the FTSE 100 continued its downward trend and was 22 points lower at 7,189 shortly before 10am.
8.30am: Muted start for the FTSE 100
The FTSE 100 made a muted start to proceedings after Sino-American relations deteriorated (see our opener) and with a Brexit deal hanging precariously in the balance.
The continued economic deterioration in China made for a tough start for the miners with Rio Tinto (LON:RIO), off 1.7%, leading the Footsie fallers.
Topping the AIM 100 with an 8% rise was ASOS (LON:ASC), which dispensed with its traditional profit warning to produce results in line with (heavily downgraded) expectations.
“The online fashion retailer has been caught in the vice of competitive price cuts and rising costs. Add in the traditional challenges of a small company trying to make it on the global stage and this years profits air-pocket was inevitable,” said Tom Stevenson of investment powerhouse Fidelity.
“Chief executive Nick Beighton candidly admits that ASOS underestimated the cost and complexity of becoming an international player.”
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