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LONDON (Alliance News) - A relatively quiet session in London sparked into life later in the day as a new poll on the UK's place in the referendum showed a swing to the leave camp, pushing markets and sterling down, while mixed data provided some food for thought for the US Federal Reserve, and the eurozone remained in deflation.
The pound dipped against the dollar in later trade following a poll published by ICM, on behalf of The Guardian, which showed a swing to the leave side of the Brexit debate.
The poll found 45% of respondents said they would vote to leave the EU, compared to 42% who said they will vote to stay. This compares to a previous poll two weeks ago which gave the Remain side an eight-point lead.
IG market analyst Joshua Mahony said the surprise ICM poll livened up a "boring" day in London markets. The sell-off of sterling later in the day "signifies the fact that markets have been caught napping with an overconfidence that every poll would come out in favour of the 'remain' campaign", he said.
Mahony did note, however, the ICM polls tend to favour the Leave campaign and more important will be seeing the latest outcomes of the ORB and Ipsos Mori polls. "With IG clients currently showing a 77% chance that the UK will remain within the European Union, it is clear that today's poll may be an outlier rather than the average," he added.
The pound was trading at USD1.4553 at the London close, compared to USD1.4629 at the close on Friday ahead of the long weekend and down from the USD1.4724 intraday high hit on Tuesday. The euro was trading at USD1.1131, slightly up on USD1.1130 at Friday's close.
The FTSE 100 closed down 0.6%, or 40.00 points, to 6,230.79, and the FTSE 250 closed down 0.3%, or 47.53 points, at 17,184.73. For May as a whole, the FTSE 100 had been on track to deliver its fourth consecutive month of gains, but the falls later in the day meant the blue-chip index was slightly lower for the month.
In the US, consumer spending, which accounts for more than two-thirds of economic activity, grew 1.0% in April, having been flat in March, according to the Commerce Department. Economists had expected growth of 0.7% in April. On the inflation front in the US, the Commerce Department said its personal consumption expenditures price index rose by 0.3% in April after inching up by 0.1% in March.
Those figures will likely drive more expectations of a June rate hike from the US Federal Reserve, following hawkish noises from the central bank in May. Consumer confidence in the US, however, dipped to 92.6 in May, down from 94.7 in April, which could dampen enthusiasm for a rate hike.
"Hawkish sentiment from the Fed last time out has pulses racing ahead of a June meeting where many expect Yellen and Co to bump rates by a quarter point. However, any rate move will be data dependent and whether today's figures will be convincing enough in the weeks to come remains to be seen," said Dennis de Jong, managing director at UFX.com.
Connor Campbell, financial analyst at Spreadex, agreed the US data on Tuesday had given the Fed "more food for thought" ahead of the June meeting.
The Dow Jones Industrial Average was down 0.4% at the London equities close on Tuesday, while the S&P 500 was down 0.1%, and the Nasdaq Composite was up 0.2%.
In Europe, the flash estimate of eurozone consumer price inflation for May, published by Eurostat, showed consumer prices dropped 0.1% from last year, as expected by economists after easing 0.2% in April. Core inflation, which excludes energy, food, alcohol and tobacco, slowed slightly to 0.8% in May from 0.7% a month ago.
Tomas Holinka, economist at Moody's Analytics, said eurozone inflation remains "subdued" following the return of deflationary pressures in May. However, "with accelerating growth in the euro zone, oil prices stabilising, and worries over a possible hard landing in China abating, inflation should return to positive territory in the second half of the year," he added.
Jonathan Loynes, chief European economist at Capital Economics, was somewhat surprised by the inflation reading, having expected the recent rise in oil prices would support eurozone CPI to a greater degree in May. He does, however, expect firmer oil prices to support inflation in Europe going forward.
Brent was trading at USD50.60 at the London close, up from USD49.36 at Friday's close, and gold was trading at USD1,213.55, compared to USD1,212.68 at the close on Friday.
In European markets, the CAC 40 in Paris closed down 0.5%, while the DAX in Frankfurt closed down 0.7%.
On Wednesday, FTSE Russell will confirm the changes to come about thanks to the quarterly review of the FTSE indices. Based on Friday's closing share prices, the changes are set to see pharmaceutical company Hikma Pharmaceuticals move back to the FTSE 100, while satellite communications firm Inmarsat will be demoted to the FTSE 250.
Inmarsat was the biggest faller in the FTSE 100, down 3.9%, while Hikma closed as the best performer in the FTSE 250, up 3.3%.
A slew of other companies are set to join the FTSE 250. Irish packaging company Smurfit Kappa Group, having moved its primary listing to London, will become the biggest company in the mid-cap index when it joins, while recent floats including lenders CYBG and Metro Bank, online trader CMC Markets, and housebuilder Countryside Properties will all join the index.
Alliance Trust was another big mover in the FTSE 250 on Tuesday, ending the day up 2.5%, after it confirmed it had received an "informal proposal" on a merger with RIT Capital Partners, the investment trust chaired by Jacob Rothschild. The Financial Times had reported over the weekend that RIT had expressed an interest in merging the two mid-cap trusts, creating a business with a market value of around GBP5.0 billion.
Alliance Trust, based in Dundee and which can date itself back nearly 150 years, has experienced a tough few years. The group attracted the ire of activist investors over its corporate governance record and its performance in recent years, culminating in the departures of its former CEO and chairman and the group embarking on a turnaround push.
RIT Capital Partners ended down 2.4%.
Brewin Dolphin Holdings, up 2.0%, was benefiting from an upgrade by Shore Capital to Buy from Hold. The broker said Brewin missed expectations in its interim results, but reckons there is a real possibility the company could become a takeover target within a consolidating sector.
Elsewhere, Asia-Pacific online gaming and media company PCG Entertainment closed down 45% after it said it is in disputes with a supplier and a principal customer which could "materially affect the company's trading and financial position going forward".
PCG said the dispute with the supplier arose from a debt repayment due to be paid to the supplier by Kolarmy Technology. The company said it has become aware that Kolarmy has not repaid the debt, resulting in a dispute between PCG and the supplier, the latter which is now seeking repayment from PCG. Kolarmy is the former major shareholder of Center Point Development Corp, which PCG bought in 2015.
The AIM All-Share closed up 0.5%, or 3.66 points, to 739.5.
Strategic Minerals, up 26%, finished among the best performers in the junior market after saying the first drill hole at the Hanns Camp nickel-copper project in Australia has intersected nickel sulphides. The company said the nickel sulphides were intersected in the first drill hole, HC001, and the characteristics were in line with the major Yilgan nickel deposits in Western Australia.
On the economic front on Wednesday, the British Retail Consortium's Shop Price Index will be published overnight, ahead of Nationwide house price prices at 0700 BST. This will be followed in the UK by consumer credit figures, mortgage approvals and manufacturing data, all due at 0930 BST. Also on the slate will be manufacturing figures from China, Japan, the Eurozone and the US.
In the corporate calendar, building materials group Wolseley publishes a trading statement, while bicycles and car parts retailer Halfords Group, property investor LondonMetric Property, and electronic products designer and distributor Acal all publish annual results.
Also to be published on Wednesday, at 0800 BST, will be the latest grocery market figures from Kantar Worldpanel.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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