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(Alliance News) - Stocks in London ended mixed on Thursday, with the FTSE 100 lower amid a firm pound and disappointing updates from Pearson and Whitbread.
Investors shifted focus to 'phase two' of the US-China trade deal after the two countries penned the 'phase one' trade agreement on Wednesday.
The UK flagship FTSE 100 index closed down 32.99 points, or 0.4%, at 7,609.81. The FTSE 250 ended up 8.12 points at 21,721.23, and the AIM All-Share closed down 1.33 points, or 0.1%, at 969.62.
The Cboe UK 100 ended down 0.2% at 12,885.76, the Cboe UK 250 closed down 0.2% at 19,593.34, and the Cboe Small Companies ended up 0.1% at 12,496.41.
In Paris the CAC 40 ended up 0.1%, while the DAX 30 in Frankfurt ended flat.
"Optimism surrounding the signing of the US-China trade deal quickly faded and the FTSE was pretty much on the back foot from the start of trading. The FTSE is heading into the close hovering around support at 7,600 following a disappointing day for corporate updates, with Pearson, Whitbread and Hays among the laggards. The stronger [pound] is adding the FTSE 100's woes," said Gain Capital analyst Fiona Cincotta.
In the FTSE 100, Associated British Foods closed up 4.2% after the Primark clothing chain owner and sugar producer reported a sales rise at Primark over the recent 16-week period.
Primark sales were up 3.0% year-on-year, or 4.5% higher at constant currency. AB Foods largely attributed this to an increase in Primark's selling space. Elsewhere, the period to January 4 saw sales rises in the Sugar unit, the Ingredients unit and revenue climbed in the agriculture business. The laggard, AB Foods said, was its Grocery unit, which saw sales level with last year.
At the other end of the large cap index, Pearson closed down 8.9% after the education publisher said it expects up to a 15% decline in operating profit for 2020 amid the changing preferences of learners.
The stock fell its lowest level since 2008 in early trade.
Pearson said its underlying revenue was flat, while adjusted operating profit was GBP590 million, within the guidance range, and up 8.1% from GBP546 million in 2018. US Higher Education Courseware revenue declined by 12%, though there was "modest" growth in digital revenue.
In addition, Pearson said Chief Financial Officer Coram Williams will be leaving the company to take on a similar role at an undisclosed company based in Europe. Pearson said Deputy CFO Sally Johnson will succeed Williams on his departure later this year. The move follows the retirement of Chief Executive John Fallon - which was announced in mid-December.
"Further pressure on profits - and therefore cash flow - could lead to questions being asked about the dividend, last cut in 2017, or at least the wisdom of the share buyback programme. Ultimately, the buyback programmes of 2017 and 2018 provided only fleeting support to the share price and if the underlying performance of the business does not improve then there is a risk that the 2020 buyback proves equally ineffective at convincing investors that all is well," said AJ Bell's Russ Mould.
Whitbread closed down 5.2% after the Premier Inn hotel chain owner said it continues to suffer from economic uncertainty and higher costs in the UK.
The company said total sales of Premier Inn UK were down 0.4%, compared to 0.1% growth in the second quarter. In London, sales grew 5%. Meanwhile like-for-like Premier Inn UK sales were down 2.1%.
Revenue per available room - a key metric in the hotel industry - for the UK fell 4.5% year-to-date and 3.6% in the three months to the end of November.
Looking ahead, in 2021 the company expects net margin headwind of about GBP60 million due to inflation, wages and other costs.
"Trading is tough for the discount hotel chain, with fewer visitors despite lower prices. Business and social travel tends to fluctuate with the fortunes of the economy, and with uncertainty looming large in the run up to the election customers have been tightening the purse strings," said Hargreaves Lansdown's Nicholas Hyett.
Elsewhere on the Main Market, N Brown closed down 25% after the catalogue and online clothing retailer issued a profit warning, reporting a mixed performance from its retail arm, amid a "highly promotional market" and struggles in its financial services unit.
Total revenue in the 18 weeks to January 4 fell by 5.0%. Womenswear saw revenue rise by 1.1% year-on-year, with digital revenue up 6.7%, predominantly due to growth in its Simply Be brand. Full-year adjusted pretax profit of expected to be in the range of GBP70 million and GBP72 million, compared with the market consensus range of GBP78.0 million and GBP84.1 million.
Compounding its woes, the stock was cut to Hold from Buy by Peel Hunt.
The pound was quoted at USD1.3070 at the London equities close, up from USD1.3024 at the close Wednesday, despite fears of an interest rate cut from the Bank of England growing.
"In just over a week, the odds for the Bank of England to cut rates at the end of the month has gone from 5% to over 60%. With inflation falling to a three-year low, BOE officials are concerned if they don't act now, they may be forced to deliver a lot more easing. The British pound is down 1.5% since the start of the year and is tentatively seeing key support from the USD1.30 level," OANDA market analyst Edward Moya said.
"If the BOE does not act, we could see the UK economy at risk at contracting. The inflation and growth data provides justification for the BOE to cut in January and possible once more before summertime. The British pound could see weakness towards USD1.2850 if we dismal PMI data next week," Moya added.
The euro stood at USD1.1135 at the European equities close, lower than USD1.1159 late Wednesday.
European Central Bank policymakers were cautious on the euro area economy, but highlighted signs of stabilisation, the central bank's December meeting minutes showed.
The minutes also showed the governing council expected key ECB interest rates to remain at their present or lower levels until it saw the inflation outlook near a level close to, but below, 2%.
The Frankfurt-based bank will announce its first interest rate decision of the new decade on Thursday next week.
Analysts at Capital Economics said: "At President Christine Lagarde's second meeting as ECB President next week, the Governing Council is sure to leave the main policy settings unchanged. The increase in inflation at the end of last year means that there is no urgency to ease policy further, but equally there is no prospect of tightening policy anytime soon.
"For now, Ms Lagarde should therefore be able to enjoy her honeymoon period without having to worry about immediate policy decisions. However, we still think that there is a greater-than-even chance that the Bank decides to loosen policy further in the second half of the year."
Against the yen, the dollar was trading at JPY110.10, up from JPY109.92 late Wednesday.
Stocks in New York were higher at the London equities close adding to record highs following the signing of a US-China trade deal and solid US retail sales figures.
The DJIA was up 0.6%, the S&P 500 index up 0.5% and the Nasdaq Composite up 0.4%. All three indices touched record highs in early trade.
US retail sales in December increased in line with analyst expectations, figures from the US Census Bureau showed.
Retail sales were up 0.3% month-on-month in December, matching November's revised rate of 0.3%, which had been first reported as 0.2%. Year-on-year, sales were up 5.8%, faster than the 3.3% rise the month before.
On the corporate front, Morgan Stanley posted a rise in income in its most recent financial year, benefiting from a 27% rise in net revenue in the fourth quarter.
The New York-based investment bank said its pretax income from continuing operations was USD11.30 billion in 2019, up 0.5% from USD11.24 billion a year ago. Net income attributable to Morgan Stanley was USD9.04 billion, up 3.3% from USD8.75 billion.
The stock was up 7.0% on Wall Street.
Brent oil was quoted at USD64.90 a barrel at the London equities close from USD63.70 at the close Wednesday.
Gold was quoted at USD1,550.05 an ounce at the London equities close against USD1,549.30 late Wednesday.
The economic events calendar on Friday has China GDP readings overnight, UK retail sales figures at 0930 GMT and eurozone inflation readings at 1000 GMT.
The UK corporate calendar on Friday has third-quarter results from credit checking agency Experian, currency manager Record and Mr Kipling cake maker Premier Foods. There is also a trading statement from gaming firm GVC Holdings.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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