LONDON MARKET MIDDAY: Soft Pound Cushions FTSE 100 Fall; NMC Slated

(Alliance News) - The FTSE 100 was slightly lower at midday on Tuesday but avoided the sharper losses seen elsewhere in Europe as London's blue-chip index was shielded by a once-again Brexit-stricken pound.

Keeping London's index of large-caps in the red was NMC Health, which tumbled after Muddy Waters Research shorted the firm and said it has "serious doubts" about the company's financial statements.

The overseas earner-heavy FTSE 100 index was down 7.92 points, or 0.1%, at 7,511.13 at midday on Tuesday.

The more domestically-focused FTSE 250 was down 269.60 points, or 1.2%, at 21,651.09, and the AIM All-Share was down 0.4% at 926.15.

The Cboe UK 100 was down 0.5% at 12,730.46, the Cboe UK 250 down 1.4% at 19,561.52, and the Cboe Small Companies flat at 11,814.30.

In European equities on Tuesday, the CAC 40 in Paris was down 0.6%, while the DAX 30 in Frankfurt was 0.9% lower.

European stocks were lower on Tuesday after riding a "wave of trade war optimism in recent days" following news of a phase one deal between the US and China, said Craig Erlam at Oanda.

"As long as both sides continue to talk up the phase one agreement, then Santa may well deliver the end of December rally that every investor craves this time of year," he said. "We just have to hope that we're not getting overly excited about an exquisitely wrapped lump of coal."

The FTSE 100 was faring slightly better than other European counterparts. With the UK election out the way, Brexit worries re-emerged, hitting the pound.

UK Prime Minister Boris Johnson is to legislate to prevent members of Parliament extending the Brexit transition period beyond the end of 2020, government sources said Monday.

Ministers are understood to have re-worked the Withdrawal Agreement Bill – due to come before the Commons this week – to "legally prohibit" any further extension.

Under current plans, the government intends to end Britain's EU membership on January 31, with an implementation to run to the end of 2020 while it negotiates a free trade agreement with Brussels.

However key EU figures – including chief negotiator Michel Barnier – have expressed scepticism a deal can be agreed in time, raising the fresh prospect of a no-deal break unless there is an extension.

The pound was quoted at USD1.3208 at midday Tuesday, down from USD1.3329 at the London equities close on Monday.

Sterling had surged above the USD1.35 mark on Friday following the election exit poll that showed the Conservatives were on course for a sizeable parliamentary majority.

"News that the British government is to legislate against an extension of the Brexit transition period - meaning a 'hard Brexit' could be back on the table - is taking positive 'hope' premium out of sterling," said ING, adding that we have likely seen a "local peak" in the pound.

In the wake of the weakened pound and Brexit worries, domestically-exposed stocks such as housebuilders were lower in London on Tuesday. Persimmon was down 3.2% and Taylor Wimpey 3.0% lower.

What's more, there was some mixed jobs data out the UK on Tuesday, with the country's unemployment rate beating expectations but earnings growth slowing.

The UK unemployment rate was estimated at 3.8% for the August to October period, 0.3 percentage points lower than a year ago and flat on the July to September period. Market consensus according to FXStreet had seen the rate edging up to 3.9%.

Pay growth, meanwhile, decelerated. Average earnings including bonuses, or total pay, grew 3.2% year-on-year in the three months to October, slower than the prior period's 3.7% rise and consensus of 3.4%.

Excluding bonuses, or regular pay, wages rose 3.5% in the three months, slowing slightly from 3.6% the previous period but above expectations of 3.4%.

In data elsewhere from Europe, the eurozone recorded a better-than-expected trade surplus in October. Exports to the rest of the world amounted to EUR217.9 billion in October, up 4.1% year-on-year. Imports, meanwhile, declined 3.2% to EUR189.9 billion.

As a result, the trading bloc recorded a non-seasonally adjusted surplus of EUR28.0 billion for the month, up sharply from EUR13.2 billion a year ago and beating forecasts, according to FXStreet, of EUR17.0 billion

The euro stood at USD1.1159 at midday Tuesday, up against USD1.1139 at the same time on Monday.

Elsewhere in forex, the yen was stronger. Against the yen, the dollar was trading at JPY109.57, down slightly from JPY109.65 late Monday.

In commodities, gold was quoted at USD1,479.29 an ounce against USD1,473.50 at the equities close on Monday, the safe haven asset rising amid Tuesday's cautious mood. Brent oil was quoted at USD65.48 a barrel midday Tuesday, flat on USD65.46 late Monday.

Stocks in New York were called lower Tuesday, with the Dow Jones seen down 0.2%, the S&P 500 index also seen down 0.2%, and the Nasdaq Composite set to dip 0.1%.

In London, NMC Health shares slumped 24% after Muddy Waters announced in a brutal research report that it had shorted the hospital operator.

Muddy Waters said it has "serious doubts" about the UAE-focused healthcare firm's financial statements, including its asset values, cash balance, reported profits, and reported debt levels.

"At the worst of times, the company has invested in large assets at costs that we find too high to be plausible – including from parties we believe are de facto under common control. This behavior gives rise to concerns about fraudulent asset values and theft of company assets. At somewhat better times, the company seems to 'only' materially mislead, such as by trying to give investors the (false) impression it does not engage in reverse factoring, and by understating (we believe intentionally) lease debt," alleged Muddy Waters.

The short seller also believes that NMC has manipulated its balance sheet to understate debt.

Muddy Waters concluded: "We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted."

Unilever shares dipped 5.2% after the consumer goods firm said it now expects underlying sales growth in 2019 to fall short of guidance.

The Anglo-Dutch company had been guiding for underlying sales growth in the lower half of its 3% to 5% multi-year range. However, it now expects underlying sales "slightly below" this guidance.

However, the Marmite spread-maker said earnings, margin and cash are not expected to be impacted.

In the FTSE 250, easyJet was down 5.3% after the low-cost airline was cut to Sell from Neutral by UBS, the Swiss bank citing an unattractive risk/reward ratio.

By Lucy Heming; lucyheming@alliancenews.com

London Market Midday is available to subscribers as an email newsletter. Contact info@alliancenews.com  

Copyright 2019 Alliance News Limited. All Rights Reserved.