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(Alliance News) - Stocks in London were lifted higher on Thursday following an agreement between China and the US lift tariffs on each other, signalling trade talks between the two are heading in the right direction.
The FTSE 100 closed 9.76 points higher, or 0.1%, at 7,406.41 Thursday. The FTSE 250 ended up 216.63 points, or 1.1%, at 20,433.22, and the AIM All-Share closed up 0.4% at 894.00.
The Cboe UK 100 index finished up 0.1% at 12,538.04. The Cboe UK 250 was up 1.1% at 18,302.49 and the Cboe UK Small Companies was up 0.3% at 11,276.32.
"Trade optimism surrounding the US-China situation has lifted stock market sentiment. It was reported that China and the US will remove their respective tariffs when the first phase of the trade deal is signed," said CMC Market's David Madden.
He continued: "Nothing is a done deal but the talks are heading in the right direction. The trade tensions of late August and early September seem like a distant memory now as there is chatter of undoing the levies. Neither side wants to appear weak, but the tariffs are clearly hurting each other, so a joint de-escalation would be an easy way out. If President Trump is being reasonable with China, he is less likely to turn up the heat on the EU, which is helping stocks on this side of the Atlantic."
The Chinese Commerce Ministry said the pair have agreed a plan to remove tariffs imposed on two-way goods in stages. But there also has been growing hope that they are close to reaching a mini agreement as part of a wider trade deal.
"In the past two weeks, the negotiation leaders of the two sides have held serious and constructive discussions on properly resolving their core concerns and agreed to roll back the additional tariffs in stages, as progress is made towards a [final] agreement," ministry spokesman Gao Feng told a news conference.
The pound was quoted at USD1.2823 at the close Thursday, down from USD1.2866 late on Wednesday.
Sterling was rocked after two members of the Bank of England's Monetary Policy Committee dissented and voted to reduce interest rates this month.
The Bank of England kept interest rates on hold, however.
The nine-strong Monetary Policy Committee voted 7-2 to maintain Bank Rate at 0.75%, while voting unanimously to keep the stock of sterling non-financial investment-grade bond purchases at GBP10 billion and the stock of UK government bond purchases at GBP435 billion.
The two dissenters on the rate decision were Jonathan Haskel - the newest member of the MPC - and Michael Saunders. The two members preferred a 25 basis point cut to Bank Rate at the meeting, judging that some extra stimulus was needed to ensure a sustained return of inflation to target.
Though the bank stuck with the current level of interest rates this week, Bank Rate, according to the path implied by forward market interest rates, is projected at 0.50% in the fourth quarter of 2020. This implies a 25 basis point cut in the coming year.
SpreadEx analyst Connor Campbell commented: "Just as it was looking like the pound was impervious to anything but election news, the Bank of England sprung a surprise.
"The fact that two members of the Monetary Policy Committee actually voted to reduce interest rates this month – the first split decision since June 2018 – freaked the pound out, causing it to immediately drop 0.4% against dollar and euro alike."
Speaking after the interest rate decision, Governor Mark Carney did not rule out extending his term again despite planning to leave at the end of January.
He has already extended his term to help with the fallout from Brexit, but with the UK now expected to leave the EU on Carney's last day in office and the government waiting until after the general election in December to appoint a successor, time is running out to find his replacement.
Carney said it was "understandable" the government has not yet made a decision on his successor "given the priority" of Brexit.
On the London Stock Exchange, RSA Insurance was biggest large-cap riser, gaining 4.0%, after the general insurer reported flat premiums in the first nine months of 2019 despite "challenging" market conditions.
RSA said insurance market conditions were largely unchanged in the third quarter, but financial markets continue to present challenges, particularly from lower bond yields. The company's net written premiums in the year-to-date of GBP4.87 billion were flat year-on-year and broadly in line with expectations.
"RSA's results to end September are strong, and consistent with our plans for the period. Current year underwriting results have sharply improved, with all our regional businesses contributing," said Chief Executive Stephen Hester.
Housebuilder Persimmon ended 3.8% higher as trading over the summer period met expectations.
Persimmon said business has been "resilient" in the second half of 2019, and the company is now fully sold for the current year. Some GBP950 million of forward sales are secured beyond 2019, compared to GBP987 million this time a year ago.
Sales volumes for the first half of 2019 dipped 6% year-on-year to 7,584 homes, but this was due to an approach of selling homes only when they are at an advanced stage of construction. Persimmon expects second-half sales to be above the first half.
At the other end of the FTSE 100, Hiscox was by far the worst performer, losing 9.7%, after JPMorgan cut its recommendation on the insurer to Neutral from Overweight. Jefferies cut its price target on the stock by 23%, keeping a Hold rating.
Hiscox was forced to clarify the medium term outlook given in its quarterly update on Monday, maintaining the market opportunity for its Retail arm remains "significant".
On Monday, Hiscox said it expects a combined ratio of between 97% and 99% for its Retail unit in 2019. Hiscox reported a group combined operating ratio of 94.9% in 2018. Any combined ratio below 100% means an insurer made a profit from its underwriting.
The insurer added, that over the medium term, it is targeting a group combined ratio of between 90% and 95%.
Then on Thursday, Hiscox clarified it expects a ratio between 97% to 99% in 2019, a ratio between 96% to 98% in 2020, between 95% to 97% in 2021 and between 90% to 95% in 2022.
Jefferies said the outlook Hiscox offered is "far larger" than the broker originally understood and the Bermuda-based insurer is preparing for a "casualty catastrophe".
Utility peers SSE and United Utilities were heading in the wrong direction after being on the wrong end of broker downgrades. SSE lost 2.3% after Berenberg cut the stock to Hold from Buy and United Utilities lost 2.0% after HSBC cut it to Reduce from Hold.
In the midcaps, Bank of Georgia added 8.9% after the lender reported a 1.8% rise in net interest income for the third quarter to GEL188.7 million, about GBP49.6 million, with net fee and commission income up 22%.
Pretax profit climbed 30% to GEL157.0 million. Bank of Georgia said it was an "excellent" quarter of growth, with improved asset quality and profitability.
Engineering firm IMI gained 7.0%. It said it has put lower-margin businesses worth 20% to 30% of group revenue under review, and it is targeting a further GBP35 million of annualised savings.
IMI has found "significant value creation opportunities" across the business after completing a group-wide review. The company said organic revenue for the three months to September 30 was 2% lower year-on-year and flat on an adjusted basis.
Despite the lower sales, IMI achieved higher margins in the third quarter, adding that units have "acted decisively" to reduce costs and protect margins.
John Wood Group ended 7.0% higher. The oil field services firm said ongoing cost-cutting measures are benefiting overall performance in a weak market.
John Wood confirmed 2019 earnings before interest, taxes, depreciation, and amortisation performance is tracking market consensus despite a "slowing macro environment".
Sinking to the bottom of the FTSE 250, Senior lost 4.7% after the engineering firm announced it is implementing a restructuring to drive improved results as it deals with challenges in the Flexonics and Aerospace markets.
The manufacturer of high-technology components and systems said the restructuring will result in around GBP20 million of savings, "with a significant portion coming from headcount reductions as we match capacity to demand", the company said.
Senior said sales grew in Aerospace in the first ten months of 2019 from a year before but revenue in the last four months, July to October, has been lower than expected due to weakened demand in the commercial aircraft engine market. Senior's Flexonics division has been performing in line with expectations with "markets weakening in the last four months as anticipated."
The local corporate calendar on Friday has a third quarter update from Lloyd's insurer Beazley and trading statements from media publisher Informa, telecommunications firm Spirent Communications and ceramics and carbon manufacturer Morgan Advanced Materials.
In European equities, the CAC 40 index in Paris ended up 0.3% and the DAX 30 in Frankfurt closed 0.7% higher.
The euro stood at USD1.1045 at the European equities close Thursday, down from USD1.1072 at the same time on Wednesday.
Stocks in New York were firmly in the green at the London equities close, with the Dow Jones up 0.8%, the S&P 500 index up 0.5%, and the Nasdaq Composite was 0.8% higher.
Madden said: "The rally on Wall Street continues as traders are hopeful about the state of US-China trading relations. Traders are content to buy into already lofty markets as the expectations are that US-China trade relations are on the mend."
Against the yen, the dollar was trading at JPY109.26, higher compared to JPY109.06 late Wednesday.
In commodities, Brent oil was quoted at USD62.51 a barrel at the London equities close Thursday up versus USD62.17 late Wednesday.
Gold was quoted at USD1,467.40 an ounce at the London equities close Thursday, sharply lower from USD1,488.80 at the close on Wednesday.
The economic calendar on Friday has Chinese trade balance overnight, followed by the German trade balance at 0700 GMT and the French trade balance at 0745 GMT. Later in the day, the Michigan consumer sentiment index in the US is due at 1500 GMT.
By Paul McGowan; paulmcgowan@alliancenews.com
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