FTSE 100 up 43 points at close
MPs still debating no-deal blocking bill
UK services PMI weaker than expected
5.10pm: Footsie closes to the good
FTSE 100 closed higher on Wednesday as the removal, for now, of the threat of a ‘no deal’ Brexit seemed to pacify the market.
It came after a heated session in Parliament yesterday evening, which saw MPs vote to take on Commons business today and propose a bill to block a no deal – which is now being debated.
The UK blue chip index closed 43.07 points higher at 7,311 on the day. The mid-cap FTSE 250 index, which ismore representative of the state of the UK economy, added 154.97 points to stand at 19,619.11.
The pound gained ground as Brexit worries eased, adding 0.98% against the US dollar at around US$1.2200.
Market analyst David Madden from CMC Markets commented in a note: “UK politics will remain in the news as the Brexit date could be pushed back again, or we might be in for a general election in a few months, but the fear of no-deal Bexit has cooled, for now at least.”
Across the pond, Wall Street was benefiting from an uptick in global sentiment too. The Dow Jones Industrial Average added 202.69 points, while the S&P 500 gained 26.61 points.
Financial stocks made gains on Footsie. The top riser was Prudential (LON: PRU), up 3.60% at 1,397.50p.
3.30pm: BoE stands ready
Bank of England Governor Mark Carney said the central bank stands ready to provide liquidity into the financial system if needed to support the economy in the event of a no-deal Brexit.
Carney and the Bank’s chief economist Andy Haldane are answering questions by parliament’s Treasury Committee about the latest inflation report and Brexit.
The governor said the Bank would need to decide whether to cut interest rates to stimulate growth or raise them to tackle inflation.
It could also cut the requirements on banks to hold capital, potentially providing a £300bn boost to balance sheets, he said.
He revealed that the Bank has scaled back its forecasts for the impact of a worst-case Brexit on the economy. It now expects a disorderly Brexit will cause GDP to decline by about 5.5%, compared to a previous estimate of 7.5%.
2.30pm: US stocks open higher
US stocks have opened higher, boosted by Hong Kong’s decision to withdraw a controversial extradition bill and better-than-expected Chinese data.
The Dow Jones Industrial Average rose 196 points to 26,315, the S&P 500 gained 23 points to 2,929 and the Nasdaq added 79 points to 7,953.
Investors sighed a relief after Hong Kong’s chief executive Carrie Lam said she withdraw a bill to extradite criminal suspects to China. They also welcomed a rise in the Caixin China services purchasing managers index to 52.1 in August from 51.6 in July, indicating further growth in activity.
2.00pm: US trade deficit with China rises
The US trade deficit narrowed a tad in July as exports rebounded and imports fell, the Commerce Department has revealed.
The trade deficit dropped 2.7% to US$54.0bn in July while data for June was revised down to US$55.5bn from a previously reported US$55.2bn. Exports rose 0.6% as the US shipped more pharmaceutical drugs, new autos, oil, drilling equipment and soybeans. Imports dipped 0.1%, led by declines in imports of computers and crude oil.
However, the trade gap between the US and China widened amid a trade dispute between the two nations.
The goods trade deficit with China increased 9.4% to US$32.8bn with imports rising 6.4% and exports falling 3.3%.
The US and China imposed fresh tariffs on each other on Sunday, fuelling concerns about a global recession.
1.00pm: US stock futures gain
US stock futures rose as investors cheered news that Hong Kong would withdraw an extradition bill that sparked months of protests in the region.
Futures for the Dow Jones Industrial Average increased 190 points to 26,311, S&P 500 futures gained 21 points to,927.50 and Nasdaq-100 futures added 72 points to 7,690.
On Tuesday, US stocks ended lower after weak US manufacturing data and amid ongoing concerns about US-China trade tensions.
The expected rebound on Wednesday comes after Hong Kong chief executive Carrie Lam said she withdraw a bill to extradite criminal suspects to China, leading to protests and concerns that the conflicts could hurt financial markets.
Looking ahead, market participants will be looking for clues about the Federal Reserve’s next move when policymakers Michelle Bowman, James Bullard and Neel Kashkari speak later.
Bid to stop no-deal Brexit provides respite to pound
The pound has recovered from yesterday’s slump below US$1.20 after MPs voted to take control of parliament in a bid to block a no-deal Brexit on 31 October.
Labour and other opposition parties will now seek to pass a bill requesting a further delay to Brexit if there is no deal agreed by 19 October.
MPs are set to vote on the bill tonight with a view to having it signed into law by the end of the week. They will also vote on the prime minister’s call for a general election.
Boris Johnson needs two-thirds of MPs to trigger an election, but Labour and other parties have said they won’t back it until a no-deal Brexit at the end of October is stopped.
Sterling rose 0.94% versus the dollar to US$1.2194 and increased 0.55% against the euro to €1.1068.
“The anti no-deal coalition are clearly emboldened by their growing strength, with Johnson’s calls for a general election expected to be rebuffed until anti no-deal legislation is passed,” said Joshua Mahony, senior market analyst at IG.
“Ultimately, the circumstances leave plenty of room for a disorderly exit, with the prospect of a Corbyn-led period of extensions and uncertainty not the most exciting prospect.
“There is no doubt that any general election would be difficult to call, and thus while a lifeline has been provided for the pound, Boris Johnson still remains the favourite, with a no-deal now seemingly the default outcome.”
— Joshua Mahony (@JMahony_IG) September 3, 2019
Oanda senior market analyst Craig Erlam said: “Recent developments, while not altogether unexpected, have slightly reopened the second referendum door if a new election sees the Conservatives underperform. This has brought some reprieve to the pound, just as it slid below 1.20 against the dollar, although no-deal still appears the far more likely outcome in traders eyes.”
He added: “There’s surely a few more twists and turns to come this week, starting with votes today on the extension bill and then a new election, assuming Parliament backs the first as is expected. Sterling volatility is going nowhere.”
11.10am: Hong Kong extradition bill boosts shares of Prudential and Standard Chartered
Prudential PLC (LON:PRU) and Standard Chartered PLC (LON:STAN) are the biggest risers on the FTSE 100 after Hong Kong boss Carrie Lam said that she would be withdrawing a bill that would have allowed the extradition of criminal suspects to mainland China’s opaque legal system.
The contentious bill had sparked protests and sent the territory into political turmoil.
“This had been the blue touch paper that helped ignite the pro-democracy demonstrations that have blighted the Hong Kong economy for most of this year,” said Michael Hewson, chief market analyst at CMC Markets.
“It remains to be seen whether it will be enough to reverse the poison and mistrust between the people of Hong Kong and its executive, but it is at least a start, and this optimism has rippled over into a positive open here in Europe this morning, with strong gains across the board from financials as well as luxury stocks, with Asia focussed HSBC, Standard Chartered, Prudential and Burberry amongst the biggest risers.”
Shares in Prudential grew 4.5% to 1,419p and StanChart rose 3.6% to 657p.
Management had previously told investors that the number of homes sold would increase by as much as 5% in the current year, but it has now conceded that growth will be closer to 3%.
The company also saw a slight decline in house prices in the year to 30 June, although that was offset by an increase in sales.
“As the group lessens exposure to the subdued London property market, following the dampening impact of economic headwinds, it’s reported a drop in average selling prices,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.
“In itself the material effect on performance hasn’t been too bad, but the real question is how Barratt will continue to make good progress if the housing market malaise spreads elsewhere.”
Shares in Barratt are down 2.7% to 605p.
10.30am: BoE unlikely to hike until 2021, says Markit economist
IHS Markit’s chief economist Chris Williamson thinks the likelihood of the UK falling into recession has increased after PMI surveys indicated a contraction of business activity in August.
The seasonally adjusted all sector output index – which measures output from manufacturing, construction and services sectors – fell to 49.7 in August from 50.3 in July.
“The August decline in the all-sector PMI has pushed the surveys further into territory that would normally be associated with looser monetary policy,” Williamson said.
“Such weak PMI readings have in fact never been seen before in over 20 years of history in the absence of either recent or imminent stimulus such as rate cuts or quantitative easing.
“Our view is that, even if a no-deal Brexit is avoided, the uncertainty relating to the UK’s trading position with the EU will spill into 2020, dampening demand, exports and investment.
“We therefore remain unconvinced that the Bank of England will be in any position to hike interest rates at least until 2021, and the deteriorating data flow raises the possibility that, whatever happens in terms of Brexit, the next interest rate could be a cut.”
10.00am: UK services PMI falls by more than expected
The UK services sector expanded in August but at a slower pace than expected.
The IHS Markit/CIPS purchasing managers’ index fell to 50.6 in August from 51.4 in July, missing analysts’ forecasts of 51.0.
A reading above 50 signals an expansion in activity while a level below that indicates a contraction.
“Business activity in the service sector almost stalled in August as Brexit-related worries escalated, curbing spending by both businesses and consumers,” said Chris Williamson, chief business economist at IHS Markit.
“So far this year the services economy has reported its worst performance since 2008, with worrying weakness seen across sectors such as transport, financial services, hotels and restaurants, and business-to-business services.”
Growth across the UK service sector slowed in August, as the UK Services Business Activity Index dropped to 50.6 (51.4 – July). Expectations dipped to lowest since July 2016. All sector data signalled a fractional fall in private sector output. More: https://t.co/ImF19cjDrd pic.twitter.com/UY2m1ou8zK
It caps off a series of weak PMI reports for August with data for manufacturing and construction revealing a contraction in output for both sectors.
8.50am: FTSE 100 edges higher
The FTSE 100 kicked off in positive territory with traders choosing to overlook Tuesday night’s parliamentary maelstrom.
In fact, there was a kicker for the pound, with the chances of No Deal Brexit receding – even if PM Boris Johnson seems intent on steamrollering the Remain rump in the commons.
In all 21 Tory rebel MPs completed a kamikaze mission that will see the ends of their political careers to defy the whip and back emergency legislation designed to stop the UK crashing out of the EU without a settlement.
As the Financial Times pointed out, it leaves the Conservative Party in the brink of disintegration and the UK potentially poised for a general election, most likely on October 15.
It is unclear whether Labour will play along with the election call, said Markets.com analyst Neil Wilson.
“Do they fall into the ‘elephant trap’, or do they prefer to watch the new Tory regime implode? With rebels having the whip withdrawn the government benches are now very much in the minority.
“However, the threat of no-deal remains high. An election has to happen sooner or later – surely it is better to happen now? Even if Parliament gets its anti-no-deal legislation on the statute book before an election, a new Parliament would be free to revoke.”
While Westminster was in turmoil, London’s other city, the Square Mile, was anything but with the index of blue-chips opening 24 points higher at 7,292.22.
The selling pressure finally eased for Marks & Spencer (LON:MKS) – but probably a few weeks too late. The retailer’s shares rose 2.5% the day after its relegation from the FTSE 100 was confirmed, ending a 35-year run in the top flight.
A great Brexit contra-indicator is the housing sector in the sense that every time No Deal looms, the building stocks take a hit. The assumption is this: Britain’s exit from Europe will rain down economic chaos, derailing consumer sentiment and therefore hurting the industry.
However, as Richard Hunter, analyst at Interactive Investor, pointed out: “The tailwinds for the sector have long been in place, with historically low interest rates, ample mortgage availability and the general housing shortage all playing a part.”
6.50am: FTSE 100 tipped to open higher after BoJo defeat
The FTSE 100 is tipped to open higher on Wednesday, while the pound has been given a lift following moves on Tuesday night to block a no-deal Brexit.
Spread-better IG expects the FTSE 100 to open 35 points higher after closing down 14 points at 7,268 on Tuesday.
Traders seem to have gained optimism following a vote by MPs on Tuesday night, which provided Parliament with a chance to pass a law blocking a no-deal exit from the EU, which is due to be debated in today’s session.
Although the uncertainty is likely to continue, with Boris Johnson saying he will table a motion for the country to go to the polls before the planned exit date of 31st October, having opposed the move to take no-deal off the table in negotiations.
“It is worth keeping in mind that a snap election is a risky bet for Boris Johnson. If he loses, he will be the shortest serving PM in the country’s history, and more importantly, the Labour Party would opt for a second Brexit referendum to make sure this is what Brits really, really want”, said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
Away from politics, currency traders will also be looking to the UK’s services PMI, due today, which could hint at slower expansion for the sector in August, while the composite PMI is also likely to confirm softer growth across sectors after construction and manufacturing PMI contracted faster than expected.
However, Ozkardeskaya said political developments would remain the “major driver” of market prices in the coming days and weeks.
On Wednesday morning, the pound was 0.15% higher at US$1.2102 against the dollar and up 0.15% at €1.1026 against the euro.
US markets fell overnight as new tariffs in the trade war with China began to kick in, while a gauge of the US manufacturing sector also signalled a contraction in activity.
The Dow fell 1.08% on Tuesday while the S&P 500 dropped 0.69% and the Nasdaq fell 1.11%.
It was a more positive story in Asia on Wednesday, with Japan’s Nikkei 225 up 0.25% and Hong Kong’s Hang Seng 1.32% higher after an improvement in Chinese service sector activity in August.
Proactive news headlines:
Haydale Graphene Industries PLC (LON:HAYD) has won a contract with the European Space Agency to build a prototype fuel tank to meet growing demand for low-cost components from the satellite constellation market.
Scancell Holdings PLC (LON:SCLP) has signed its first collaboration deal with an unnamed “leading antibody technology company” as it bids to develop an early-stage technology created to directly kill tumour cells.
Columbus Energy Resources PLC (LON:CERP) is set up for a busy second half of 2019, according to chairman Leo Koot, who alongside interim results highlighted a number of upcoming exploration opportunities.
Highlands Natural Resources PLC (LON:HNR) has announced that chairman and chief executive Robert Price is leaving the company to pursue other interests as the AIM-quoted firm confirmed it was becoming a vertically integrated CBD company.
Significant events expected on Wednesday September 4:
Economic data: Caixin China PMI composite, Markit UK services PMI, MBA US weekly mortgage applications
Around the markets:
Sterling: US$1.2102, up 0.15%
Brent crude: US$58.48 a barrel, up 0.38%
Gold: US$1,543.7 an ounce, down 0.15%
Bitcoin: US$10,564.3, up 1.6%
- Boris Johnson suffered a humiliating defeat in his first Commons, losing control of Brexit last night, as MPs paved the way for an extension of the 31 October deadline – Times
- Marks & Spencer is to drop out of the FTSE 100 for the first time; the retailer was a founding member of the leading City share index – Guardian
- GKN to cut 1,000 jobs at its aerospace division as cost-cutting measures after its £8.1 billion hostile takeover by turnaround investor Melrose take hold – Telegraph
- Amazon paid a total of £220 million in direct taxes in the UK last year despite its total revenues from doing business in the country amounting to £10.9 billion – Times
- A group of leading academics has warned that an abrupt departure from the EU would bring significant disruption to life in the UK, with a “highly probable” recession – Financial Times