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London open: Stocks dip with central banks in focus
Stocks are trading slightly lower at the start of the week, with all eyes on foreign central banks and ongoing trade negotiations around the world ahead of a keenly awaited policy announcement from the Bank of England later in the week.
“Investor sentiment is perhaps hampered by the prospect of three major interest rate policy decisions this week; Bank of Japan (Tue, 4am, rate expected unchanged, but stimulus policy could be tweaked), Fed (Weds, 7pm, no change expected) and the Bank of England (Thurs, 12pm, rate hike expected),” said Mike van Dulken and Artjom Hatsaturjants at Accendo Markets.
Overnight, the Bank of Japan stepped-in for the third time in just over week in order to keep the yield on the country’s 10-year government bonds under 0.10%, offering to purchase an unlimited amount of them at that level.
Speculation on the part of traders that the Bank of Japan might announce a shift in its policy the next day was behind the recent upwards pressure on bond yields around the world, which in turn had been weighing on share prices.
Against that backdrop, the FTSE 100 was down 0.21% or 15.68 points to 7,685.31 as of 0916 BST on Monday, weighed down by the phalanx of blue chip miners amid lower copper prices, led by Anglo American and Rio Tinto. Three-month LME copper futures were off by 1.48% to $6,203.50 per metric tonne.
Looking ahead to the BoE announcement on Thursday, the consensus among economists was for a 25 basis point hike in Bank Rate, to 0.75%. UK bank shares were higher, led by Barclays and RBS.
However, by and large, markets appeared to be quite sceptical that another rate hike would follow before the end of 2019, with the uncertainty around Brexit a key factor.
According to analysts at ING, “after August, markets are barely pricing in another rate hike before the end of 2019. We suspect policymakers would prefer investors to expect an earlier move, however realistically we think the Bank will struggle to hike rates again for quite some time.
“As long as Brexit talks remain in deadlock (specifically over the Irish backstop), talk of ‘no deal’ will only increase. If this starts to hit sentiment, it would complicate efforts to tighten policy further.”
Analysts at Jefferies were in a similar frame of mind, saying: “It remains an open question when the UK will see a 1.5% Bank Rate again. But, there are parallels with the ECB, where going forwards there will be more focus on 2020, after both Mark Carney & Mario Draghi have moved on.”
On that note, in an interview with Bloomberg published on Monday, Governor Mark Carney said he had spent a fair amount of time on contingency planning for Brexit and that now it certainly does crowd-out other factors, adding that it was taking up nearly half his time.
Also in the headlines, at the weekend Italian far-right deputy prime minister, Matteo Salvini, told The Sunday Times that his government would back the UK in its trade talks, urging Westminster to take a tougher stance in its negotiations with Brussels.
The UK also received a dose of support from China, with new foreign minister Jeremy Hunt saying on Monday that Beijing had offered to start discussions on a free trade deal with Britain.
Consumer credit and mortgage lending figures for June were set for release at 0930 GMT.
Foxtons scraps dividend, Ibstocks warns
Shares in Foxtons were moving higher despite swinging to a loss for the first half on the back of a 9.5% drop in sales, which forced it to scrap its dividend. Nevertheless, the latter may be a bit of a ‘non-event’, said Mike van Dulken at Accendo Markets, given how the shares were barely yielding 1% even after plummeting 44% from their April highs.
The real estate agent also said renting was showing some momentum and announced a review of its cost base, although overall sales were subdued.
Brick and tile-maker Ibstock meanwhile followed-up on what Accendo termed a “disappointing” AGM in May with a profit warning, telling shareholders that slow production had extended into July. Making matters worse, increased maintenance would be needed over the next twelve months.
Aerospace and automobile engineering group Senior bumped up its interim dividend payout by 6.8% to 2.19p, telling shareholders that trading was ahead of expectations over the six months ending on 30 June, with higher margins seen in both of its main divisions, Aerospace and Flexonics. Profits before tax were 20% higher at £39.0m (Numis: £37.0m). Free cash flow also improved, the company said, rising 9% to £32.2m, even as the firm cut net debt by £33.0m to £148.8m.
Insurer Hiscox was higher as its first-half profit before tax came out 7% ahead of consensus, driven by stronger underwriting, boosted by reserve releases.
Shares in Ladbrokes owner GVC Holdings were boosted by its new 50-50 joint venture with Las Vegas casino giant MGM Resorts International to capitalise on the new sports betting laws in the US. The pair will invest $100m apiece into the JV and said its formation would significantly increase the speed to market for both parties, lower execution risk and create “meaningful early mover advantages”, getting up and running before the start of the upcoming NFL season.
CYBG confirmed that trading in the three months to 30 June was in line with its expectations on Monday, with year-to-date mortgage growth of 3.8% on an annualised basis after its third quarter to £24.2bn. The FTSE 250 firm said that as previously guided, it saw reduced mortgage drawdowns in the third quarter due to lower applications in the second quarter, with full-year mortgage growth expected to be at the lower end of its guidance range, as previously indicated. It said the all-share offer for Virgin Money was continuing to progress as planned.
Indivior erased early losses as it revealed that lawyers will be able to begin arguing the drug developer’s case against Dr Reddy Laboratories in October, after the US appeals court agreed to speed up the process. Dr Reddy’s is appealing after it was prevented from selling its generic version of Indivior’s Suboxone Film, a treatment for opioid addiction.
Grocer Morrisons was higher after an upgrade from UBS, which moved to ‘buy’ from ‘neutral’ and upped its target prices to 300p from 225p.
