LONDON MARKET CLOSE: UK Election Speculation Sinks Pound, Lifts FTSE

(Alliance News) - The FTSE 100 rocketed higher on Monday, far outpacing the gains recorded elsewhere in Europe, as London's internationally-exposed index benefited from the pound's slide.

Sterling, knocked by speculation UK Prime Minister Boris Johnson will call a general election in the coming days, also suffered following some weak UK manufacturing data.

The FTSE 100 index closed up 1.0%, or 74.76 points at 7,281.94. The FTSE 250 ended up 87.92 points, or 0.5%, at 19,481.55, and the AIM All-Share closed up 2.03 points, or 0.2%, at 873.60.

The Cboe UK 100 ended up 1.4% at 12,357.62, the Cboe UK 250 closed up 0.6% at 17,337.11, and the Cboe Small Companies ended up 0.5% at 10,907.06.

In European equities on Monday, the CAC 40 in Paris ended up 0.2%, while the DAX 30 in Frankfurt ended 0.1% higher.

London's blue-chip index, the FTSE 100, surged at the start of the week as the pound slumped.

"The international nature of top tier British equity market means a slide in the pound helps the constituents of the index," explained David Madden at CMC Markets. "'Brenda from Bristol' might not be too happy about it, but there is talk the government is considering calling a snap general election, and that is chipping away at the pound."

Boris Johnson put rebels within his party on notice that they face losing the whip and being barred from standing for the Tories if they vote against the government.

The prime minister has called a meeting of his Cabinet on Monday afternoon to consider how to respond to the possibility of MPs seeking to take control of Commons business. It has sparked feverish speculation about the prospect of a general election being called within days if the government loses the expected Commons vote on Tuesday.

With the Tories having a majority of just one with the DUP's support, removing the whip from rebels would further weaken Johnson's hold on Parliament and increase the chances of an election.

"The Brexit uncertainty is bad enough, and now there is election uncertainty. Opinion polls put the Conservative Party in the lead, but traders still remember the 2017 election when Theresa May threw away her majority," Madden added.

The pound was quoted at USD1.2062 at the London equities close Monday, down from USD1.2178 at the close on Friday.

Compounding the pound's political woes, UK manufacturing output hit a seven-year low in August as uncertainty hindered the domestic and export markets.

The IHS Markit/CIPS Purchasing Managers' Index slipped further into contraction territory in August with a reading of 47.4, down from 48.0 in July. Any reading below 50 indicates shrinkage in the sector, while one above signals expansion.

"Steep" reductions in new orders were registered across the consumer, intermediate and investment goods industries. Meanwhile, the level of new export business contracted at the fastest rate in over seven years.

"The big picture is that manufacturing is on track to contract for a second consecutive quarter, and a meaningful recovery is unlikely given the ongoing struggles of global manufacturing," said Andrew Wishart, economist at Capital Economics.

He added: "But the services sector is typically unfazed by contractions in manufacturing. The upshot is that unless there is a no deal Brexit, we think that the UK will avoid recession."

The eurozone's manufacturing sector also remained in contraction territory in August, data showed.

The eurozone manufacturing PMI for August stood at 47.0, compared to 46.5 in July. This means conditions have improved slightly, but still remain comfortably in contraction. July's figure had been a six-and-a-half-year low, IHS Markit said, and August's reading is the second-worst since April 2013.

At 43.5, Germany's figure remained deep in contraction in August, and was not far off July's seven-year low of 43.2.

The euro stood at USD1.0965 at the European equities close Monday, against USD1.0988 at the same time on Friday.

In the US, markets are closed for the Labor Day holiday, and will re-open on Tuesday.

In the latest trade war update, China said it has lodged a complaint against the US with the World Trade Organization.

The world's two biggest economies have been embroiled in a bruising year-long trade war which escalated further on Sunday when both sides moved ahead with fresh tit-for-tat levy hikes.

"These American tariffs seriously violate the consensus reached by the leaders of our two countries in Osaka," Beijing's commerce ministry said, referring to trade discussions in the Japanese city in June.

In commodities, Brent oil was quoted at USD58.38 a barrel at the London equities close Monday from USD58.80 late Friday.

Gold was quoted at USD1,525.86 an ounce at the London equities close Monday against USD1,528.74 at the close on Friday.

In London, AstraZeneca ended as the top blue-chip performer after some positive trial results over the weekend.

The FTSE 100-listed pharma firm, ending up 2.9%, said the phase III THEMIS trial showed Brilinta, or ticagrelor, plus aspirin reduced the relative risk of cardiovascular death, heart attacks, or strokes by 10% compared with aspirin alone in patients with coronary artery disease and type-2 diabetes.

Separately, the company released detailed results from the phase III DAPA-HF trial which showed Farxiga, or dapagliflozin, reduced both the incidence of cardiovascular death and the worsening of heart failure in patients with reduced ejection fraction, with and without Type-2 diabetes.

In the red was Micro Focus International, closing down 1.9%.

De La Rue, closing flat, said it has appointed Micro Focus International Executive Chair Kevin Loosemore as non-executive chair designate with immediate effect.

Micro Focus is a FTSE 100-listed enterprise software developer, while De La Rue provides security services for the financial sector, including protection against banknote counterfeiting and authentication of products.

Marks & Spencer shares declined 1.4% as Goldman Sachs resumed the high street stalwart with a Sell rating. In addition, the clothing, food and homewares retailer looks set for relegation from the FTSE 100 in this week's index review.

The results of the latest index review will be announced after the market close on Wednesday, and will be based on Tuesday's closing prices.

Among stocks in the FTSE 250 on course for relegation are Intu Properties, Metro Bank, and Amigo Holdings. The three closed down 6.2%, 2.7% and 1.1% respectively.

Elsewhere in the FTSE 250, Dechra Pharmaceuticals hiked its annual dividend amid double-digit growth in revenue due to a strong performance in the group's key markets.

For the year to the end of June, the veterinary pharmaceutical group said its reported pretax profit was GBP27.8 million, down 3.8% from GBP28.9 million the year before. This was mainly the result of a GBP77.0 million hit from the amortisation of acquired intangibles, following acquisitions over Dechra's last two financial years.

On an underlying basis, pretax profit rose more than fourfold to GBP117.4 million from GBP28.9 million. Meanwhile, revenue for the group grew by 18% to GBP481.8 million from GBP407.1 million, driven by growth in Dechra's key markets.

The stock closed down 0.7%.

In Tuesday's corporate calendar, there are first quarter results from packaging firm DS Smith and interim earnings from pan-Asian Wagamama dining chain owner Restaurant Group.

In the economic calendar on Tuesday, British Retail Consortium like-for-like sales are due at 0001 BST while the UK's construction PMI is out at 0930 BST. In the US, there is a manufacturing PMI at 1445 BST and construction spending at 1500 BST.

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