(Alliance News) - Stocks in London ended sharply lower on Thursday, with the FTSE 100 sinking following strength in the pound, which appreciated on Brexit deal optimism.
The overseas earnings-heavy FTSE 100 index closed down 75.79 points, or 1.1% at 7,128.18.
The mid-cap FTSE 250 index ended down 2.43 points at 19,205.32, and the AIM All-Share index finished down 2.40 points or 0.3% lower at 869.09.
The Cboe UK 100 closed down 1.2% at 12,062.00, the Cboe UK 250 flat at 17,066.26, and the Cboe UK Small Companies up 0.3% at 10,907.06.
In Paris the CAC 40 ended down 1.0%, while the DAX 30 in Frankfurt ended down 0.6%.
"The FTSE 100 ended firmly in the red on the back of the surge in sterling, which was triggered by hopeful comments from Angela Merkel in relation to the backstop. The inverse relation between the pound and the FTSE 100 is hitting the British index hard. The equity benchmark has large international exposure, and the pound’s rally is causing the pain," said CMC Markets analyst David Madden.
The pound was quoted at USD1.2250 at the London equities close, up sharply from USD1.2131 at the close Wednesday.
Sterling spiked on hopes a Brexit deal could still be within reach following UK Prime Minister Boris Johnson's meetings in Paris and Berlin.
Johnson met with French President Emmanuel Macron on Thursday in a bid to break the Brexit deadlock, as the UK stares down the barrel of crashing out of the bloc on October 31, with or without an agreement.
Johnson said he had been "powerfully encouraged" by German Chancellor Angela Merkel's suggestion on Wednesday that a solution could be sought in the next 30 days.
Meanwhile, a "solution" for the UK to leave the EU with a deal should be possible within 30 days "if there is goodwill on both sides," French President Emmanuel Macron said on Thursday.
However, the "fundamental balances" struck in the withdrawal agreement negotiated by Johnson's predecessor Theresa May must be respected, Macron warned.
Key elements of the agreement such as the Irish backstop are not just technical constraints but "indispensable guarantees to preserve stability in Ireland, for the integrity of the single market," Macron added.
The so-called backstop for the border between Northern Ireland - part of the UK - and EU member state the Republic of Ireland could be replaced by technical measures such as trusted trader schemes and electronic pre-clearance, Johnson said.
"Reacting as if there had been actual progress made, the pound showed its desperation for good news as it leapt against both the dollar and euro. Cable crossed USD1.223 for the first time since the end of July. The FTSE 100 was not best pleased about this - well, the positive pound part at least - plunging almost 100 points as it returned [near] 7,100," Spreadex analyst Connor Campbell said.
Later on Thursday, Merkel clarified remarks she made during her meeting with UK Prime Minister Boris Johnson on Wednesday, in which she said a solution to the Brexit negotiations could be found in the next 30 days.
Several British media outlets took that to mean a deadline, but Merkel said on Thursday she did not mean it literally.
On the London Stock Exchange, NMC Health ended as the best blue chip performer, up 19% after the UAE-focused private healthcare operator proposed a share buyback after reporting interim profit and revenue growth following a "strong" performance.
For the six months ended June, pretax profit widened 18% to USD140.6 million from USD118.7 million the year prior. This was after revenue rose 33% to USD1.24 billion from USD932.0 million the year before.
In a separate announcement, NMC announced its intention to seek shareholder approval for a share buyback programme worth up to USD200 million in order to "take advantage of exceptional price volatility" at the firm.
Earlier on Thursday, Reuters reported two groups were making competing offers to buy a 40% stake in NMC worth up to USD1.9 billion.
"Half-year results show that earnings continue to grow, it is getting better at managing working capital and debt pressures are easing. But perhaps the real reason behind today's share price spike is chatter that two groups including one backed by China's Fosun, are fighting to buy a 40% stake in NMC, potentially at a premium to last night's market price," said AJ Bell's Russ Mould.
At the other end of the large cap index, Ocado ended down 3.1% after the online grocer said its customer fulfilment centre in south-east London had experienced a small fire outside the building, which has now been extinguished.
The grocery delivery firm said a "small fire" in a hopper containing waste packaging outside the building was reported at its operations in Erith. The London Fire Brigade have since put the fire out. Ocado emphasised that no part of the material handling equipment at the site was involved in the fire. In February, the company's customer fulfilment centre in Andover, England, was burned down following a fire caused by an electrical fault which resulted in one of its grocery-carrying robots going up in flames.
In addition, Imperial Brands, ended down 2.8%, Prudential, down 2.1%, and Schroders, down 0.5%. The stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.
In the FTSE 250, Rank Group ended the best performer, up 12% after the gambling company said revenue grew slightly in its most recently ended financial year.
Rank reported revenue growth to GBP695.1 million in the year to the end of June, up 0.6% year-on-year. Like-for-like revenue remained broadly flat at GBP729.5 million compared to GBP731.3 million. Pretax profit fell, however, 26% to GBP34.6 million year-on-year due in part to an increase in operating costs.
Rank declared an interim payout of 7.65 pence a share, up 3% from 7.45p paid the year before.
Rank's transformation programme, launched in December 2018, is now starting to drive performance improvements in both its UK and international venues businesses, the company noted.
At the other end of the midcaps, Ferrexpo ended the worst performer, down 6.1% after Liberum double downgraded the iron pellet producer to Sell from Buy.
The euro stood at USD1.1075 at the European equities close, against USD1.1097 late Wednesday.
Eurozone central bankers had worried that an economic slowdown hitting the bloc would drag on, as they prepared the ground for a new package of stimulus measures, according to minutes of their July meeting.
In a pessimistic reading of the outlook for the single currency zone, the bankers noted that "there was now an increased likelihood that the economic slowdown or 'soft patch' that had emerged last year would be more protracted than had previously been anticipated".
With the downbeat outlook in view, central bankers noted that introducing a package of stimulus measures, rather than individual options, may be more effective. ECB President Mario Draghi had signalled after that July meeting that it could unleash a new round of easing measures and slash rates further to fight sluggish growth and shore up stubbornly low inflation.
Since that meeting, the clouds have continued to darken, with the bloc's biggest economy Germany now projected to slide into recession in the third quarter.
Analysts at ING said: "The ECB finds itself in a rather uncomfortable position. It is to demonstrate its willingness and determination to act, while at the same time it also knows that monetary policy alone can longer solve the low-growth-low-inflation problem of the eurozone. However, doing nothing isn't really an option.
"Therefore, we continue to see the ECB starting a final monetary firework at the September meeting: a 20 basis points rate cut of the deposit rate, a small tiering system, a repricing of the TLTROs and a restart of QE with some EUR30 billion per month could be Mario Draghi's last hoorah before handing over to Christine Lagarde."
Stocks in New York were down at the London equities close as the Kansas City Federal Reserve Bank hosted its annual central banking symposium in Jackson Hole, Wyoming.
Kansas City Federal Reserve President Esther George told CNBC she disagreed with the central bank's move to cut interest rates last month and the July rate cut was not needed, as the US economy is still strong.
The DJIA was down 0.3%, the S&P 500 index down 0.6% and the Nasdaq Composite down 0.9%.
Investors are now awaiting the keynote speech on Friday by Fed Chair Jerome Powell at Jackson Hole to see what direction the Fed will take ahead of its policy meeting next month.
"There is a risk that Chair Jerome Powell will use his speech at the Fed's Jackson Hole Symposium on Friday to push back against market expectations for another 100bp of rate cuts over the next couple of years. On balance, however, we think he is unlikely to risk upsetting the markets," said analysts at Capital Economics.
Meanwhile, growth concerns returned to the fore after US manufacturing sector activity fell to its lowest level in nearly 10 years as new orders shrank, IHS Markit said.
The seasonally adjusted IHS Markit Flash US Manufacturing Purchasing Managers' Index reading came in at 49.9 in August, down from 50.4 in July. The score fell below the 50.0 mark, which separates expansion from contraction, for the first time since September 2009. The figure also missed the market expectation of 50.5.
According to Markit, the decline in the manufacturing PMI mainly reflected a much weaker contribution from new orders, which offset a stabilisation in employment and marginally faster output growth.
Brent oil was quoted at USD59.77 a barrel at the London equities close, down from USD60.75 at the close Wednesday.
Gold was quoted at USD1,499.20 an ounce at the London equities close, down from USD1,503.01 late Wednesday.
The economic events calendar on Friday has Japan inflation data at 0030 BST and US new home sales data at 1500 BST.
The UK corporate calendar on Friday has interim results from IT services company Computacenter and construction company Henry Boot.
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