LONDON MARKET MIDDAY: Pound Sinks On Interest Rate Cut Hint

(Alliance News) - Stocks in London were higher at midday Friday, while the pound fell after a Bank of England economist indicated an interest rate cut could be on the cards.

The internationally exposed FTSE 100 index was up 84.92 points, or 1.2%, at 7,436.00 at midday, at its highest levels in around two months. The index was helped in part by weakness in the pound.

The FTSE 250 was up 101.86 points, or 0.5%, at 19,920.47. The AIM All-Share was up 0.58 points, or 0.1% at 871.81.

The Cboe UK 100 index was up 1.1% at 12,618.41. The Cboe UK 250 was up 0.5% at 17,791.11 and the Cboe UK Small Companies up 0.1% at 10,868.49.

In Paris the CAC 40 was up 0.3%, while the DAX 30 in Frankfurt was up 0.9%.

"UK stocks are outperforming their mainland European counterparts this morning, as a surge in mining stocks helped build on a boost evident from a weakening pound. The commodities sector provided us with a clear indication of how markets sentiment is shaping up around the trade war, with the outperformance for mining names such as Glencore, Anglo American and BHP Group highlighting a resurgence in US-China optimism. While we are yet to see another major US-China breakthrough, the US-Japan deal offers optimism that Trump could soon emerge with something similar from Chinese talks," IG Group's Josh Mahony said.

In the FTSE 100 heavyweight mining stocks were among the blue chip risers, with Glencore, up 2.5%, Anglo American, up 2.9%, and BHP, up 2.4%.

Persimmon was the best blue chip performer, up 4.4% after Jefferies raised the housebuilder to Buy from Hold.

At the other end of the large cap index, Mexican gold miner Fresnillo was the worst performer, down 2.7%, tracking spot gold prices lower.

The precious metal was quoted at USD1,492.60 an ounce at midday, down from USD1,507.20 at the London equities close on Thursday.

In addition, a trio of blue chip constituents which issued profit warnings on Thursday, continued to slide on Friday.

Carnival was down 1.8%. UBS downgraded the cruise line operator to Neutral from Buy and Berenberg cut the stock to Sell from Hold. Carnival on Thursday lowered earnings guidance for both the fourth quarter and for the 12 months to the end of November due to higher fuel prices. The stock closed down 7.2% on Thursday.

Imperial Brands was down 1.3%. Shares in the tobacco firm continued to fall after it warned on Thursday that the backlash against vaping and e-cigarettes in the US would weigh on revenue. The stock closed down 13% on Thursday.

Pearson was down 0.8%. Shares in the education publisher continued to slide after it warned on Thursday that a drop in demand for US college textbooks would hurt earnings. The stock closed down 14% on Thursday.

In the FTSE 250, Pennon Group was up 0.6% after the water company said it intends to review its options following good performance from its Viridor and South West Water units.

However, Pennon did say revenue is expected to return to a "more normal" level in the first half, ending September, of its current financial year.

Pennon intends to "conduct a full review of its strategic focus, growth options and capital allocation policy".

Turning to currency markets, Michael Saunders, a member of the BoE's Monetary Policy Committee, said on Friday that he expects to see continuing uncertainty in the UK, regardless of the outcome of negotiations with the European Union.

Speaking to business leaders in Barnsley, South Yorkshire, he said: "If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in the bank rate would be down rather than up."

Saunders added that rates could rise if Brexit uncertainty falls significantly and global growth recovers.

The pound was quoted at USD1.2285 at midday, down from USD1.2358 at the London equities close Thursday, in the wake of the BoE policymaker's comments.

IG's Mahony added: "The FTSE 100 is surging higher amid a sharp decline in the pound, with comments from BoE hawk Saunders signalling the potential for a rate cut even before the Brexit deal has been resolved. While sterling traders have typically been bullish when no-deal Brexit fears recede, it is also evident that this huge uncertainty is not helping the economy.

"His comments highlight the economic impact of any Brexit extension beyond October and marks the completion of a huge reversal BoE rhetoric. The central bank's stance seems to have shifted from signalling a likely rate hike irrespective of the type of Brexit, to a rate cut even before the type of Brexit is decided."

Slow growth in the eurozone has led to the European Central Bank cutting rates and inject more money through quantitative easing into the markets.

Across the pond, the US Federal Reserve earlier this month also cut interest rates - following months of heavy lobbying from US President Donald Trump.

Stocks in New York were set for a higher open, with the DJIA, the S&P 500 index and the Nasdaq Composite all called up 0.3%.

Still to come in the economic events calendar, there is US personal consumption expenditure figures at 1330 BST - the core reading is the Federal Reserve's preferred gauge of inflation.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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