LONDON MARKET CLOSE: Pound Rises As UK PM Gets Election Boost

(Alliance News) - Stock prices in London ended mixed on Monday, with the FTSE 100 in the red as the pound strengthened following the Brexit Party's decision to stand aside in Conservative Party seats in next month's UK general election.

The UK large-cap index closed 30.84 points, or 0.4%, lower at 7,328.54. The FTSE 250 ended up 52.40 points, or 0.3%, at 20,410.03, and the AIM All-Share closed down 0.91 point at 891.01.

The Cboe UK 100 index finished down 0.5% at 12,415.59. The Cboe UK 250 closed up 0.4% at 18,333.76 and the Cboe UK Small Companies ended up 0.3% at 11,291.90.

In Paris the CAC 40 index ended up 0.1%, while the DAX 30 in Frankfurt ended down 0.2%.

"Though a good chunk of its banks are now in the green, the FTSE was unable to ease its own losses thanks to an aggressive bounce from the pound," noted Spreadex analyst Connor Campbell.

The pound was quoted at USD1.2867 at the London equities close, up from USD1.2784 at the close Friday, after Nigel Farage said the Brexit Party would not field candidates in seats the Conservative Party won in the 2017 UK general election.

The Brexit Party leader said he had taken the "difficult decision" not to contest the 317 seats held by the Tories at the last election amid fears it could lead to a hung parliament and a second referendum on EU membership.

The announcement was welcomed by UK Prime Minister Boris Johnson who said it was recognition that only the Conservatives could "get Brexit done".

Markets.com analyst Neil Wilson said: "This is a big boost to the Conservative Party as the Brexit Party had talked about fielding 600 candidates. It changes the electoral map. Mr Farage seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020. Mr Farage and everyone else knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.

"The Brexit Party will however contest Labour and other pro-Remain parties. It's a massive moment for the campaign and gives the Tories a clear run at Downing Street."

In the FTSE 100, domestic-focused stocks were among the risers. Lenders Lloyds Banking Group, Royal Bank of Scotland and Barclays closed up 4.0%, 4.1% and 3.0%, respectively.

UK housebuilders Persimmon, Barratt Developments, Berkeley Group and Taylor Wimpey closed up 3.9%, 2.5%, 3.1% and 0.9%.

"On the 100 the stocks that are more exposed to the domestic economy are doing well today - chiefly banks and housebuilders. And all of that is because of the pound rally and investors seemingly a little more confident that Tories will gain a majority following the Brexit Party decision to stand down in Tory seats," said Markets.com's Wilson.

Conversely, heavyweight mining stocks with global exposure were weighing on the London large-cap index. Glencore, Antofagasta, Anglo American, Polymetal International, BHP and Rio Tinto closed down 3.5%, 3.0%, 2.7%, 2.9%, 2.0%, and 1.6% respectively.

As a result of the Conservatives and the Brexit Party not competing for seats in next month's general election, analysts at FXPro told Alliance News: "This news is positive for the UK markets in general, as it reduces the degree of uncertainty. Nevertheless, the FTSE 100 is losing after the pound spike, the Chinese markets' drop-down and the negative dynamic of the US indices.

"Among the leaders of the decline there are mining companies with revenue mainly in overseas currencies (often in USD), so that a rise in the pound hurts their profit."

In addition, Rolls-Royce Holdings closed down 4.8% after Societe Generale downgraded the jet engine maker to Hold from Buy.

In the FTSE 250, Greggs ended the standout performer, up 17% after the bakery chain upped its full-year expectations while reporting sales growth over the past six weeks of trading.

In the period to November 9, total sales were up 12% year-on-year and the bakery chain registered like-for-like growth of 8.3% in its company-managed shops. In the same period last year, total sales rose by 8.3% and by 4.0% on a like-for-like basis.

The Newcastle Upon Tyne-headquartered firm now expects its full-year pretax profit, excluding exceptional costs, to be higher than previous internal expectations.

On the economic front, the UK economy avoided falling into a recession after UK gross domestic product returned to growth in the third quarter.

New figures from the Office of National Statistics revealed that UK GDP rose by 0.3% for the three months to September.

The economy had been at threat of entering a recession - which is defined by two consecutive quarters of economic decline - after it contracted by 0.2% in the three months to June.

Annually, GDP expanded 1.0% in the third quarter, below forecasts for 1.1% growth.

Commenting on the data, Cormac Nevin, an investment analyst at Beaufort Investment, said: "With regard to wider macroeconomic developments in the UK economy, our portfolios are positioned to be rather Brexit-agnostic, as anyone who tells you they know what will happen should not be taken seriously. We have diversified away from sterling bonds to have global exposure - to take advantage of a wider opportunity set and move away from concentrated exposure to the idiosyncratic risks of the sterling bond market - which is also wildly overpriced.

"Within equity, we are neutral on UK equity - as when currency considerations are taken into account, it is very difficult to anticipate the market reaction to the variety of Brexit outcomes. Domestically focused UK equities are also quite cheap relative to global peers. Similarly to fixed income, we maintain globally diversified equity exposure. As ever, it's best not to put all of one's eggs in one basket."

The euro stood at USD1.1031 at the European equities close, up slightly from USD1.1019 late Friday.

Against the yen, the dollar was trading at JPY109.05, marginally lower than JPY109.12 late Friday.

Stocks in New York were down at the London equities close, having touched record highs last week, as questions remained over the likelihood of a US-China trade deal.

The DJIA was down 0.4%, the S&P 500 index down 0.3% and the Nasdaq Composite down 0.2%.

With the US government closed in observance of Veteran's Day, it was unlikely that President Donald Trump or his team would provide any clarity on details of a "phase one" agreement to end the lingering trade conflict between the economic powers.

Trump on Friday contradicted a Chinese assertion that Washington and Beijing already had agreed to roll back tariffs.

Brent oil was quoted at USD62.58 a barrel at the London equities close, higher than USD61.70 at close Friday.

Gold was quoted at USD1,452.20 an ounce at the London equities close, lower than USD1,467.30 late Friday.

The economic events calendar on Tuesday has UK unemployment data at 0930 GMT.

The UK corporate calendar on Tuesday has interim results from property company Land Securities, telecommunications firm Vodafone Group, and Irish support services group DCC. There are also third-quarter results from broadcaster ITV and from defence contractor Meggitt.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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