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London open: Miners gain on China stimulus as May braces for defeat
London stocks rose in early trade on Tuesday, with miners leading the charge as investors welcomed Beijing’s latest pledge to support the economy, but Brexit-related jitters could take hold at any moment ahead of the Commons vote on Theresa May’s deal.
At 0830 GMT, the FTSE 100 was up 0.8% at 6,908.31, while the pound was flat against the dollar at 1.2868 and 0.1% firmer versus the euro at 1.1231.
China has announced plans to cut taxes on a larger scale to help support its slowing economy, boost spending and provide financing for private and small businesses.
Spreadex analyst Connor Campbell said: “After Monday’s imports and exports plunge – just the latest sign that the Chinese economy is grimacing under the strain of Trump’s tariffs – put the fear in investors, Beijing have moved (somewhat) quickly to try and convince everyone that things are going to be OK.
“The country’s finance ministry announced it intends to cut VAT rates for certain industries, including manufacturers, while giving tax rebates to others. At the same time, the People’s Bank of China claimed it would keep liquidity ‘reasonably ample’, a pincer attack of reassurances that, looking at the markets, seems, for now, to have worked.”
On home turf, Brexit was firmly in focus as Theresa May’s deal looked set for a heavy defeat in parliament after she failed to shift the EU’s position on the Irish backstop.
Neil Wilson, chief market analyst at Markets.com, said it seems unlikely that the market really reflects where we are about to go on Brexit, albeit the lie of the land seems more favourable for pound bulls longer term, namely a higher chance of a no-Brexit or very soft Brexit.
“Extension of Article 50 seems likely if this deal fails and Jeremy Corbyn manages to force an election. But similarly the no-deal risks rise by the day with March 29 just a couple of months away.”
Traders should expect considerable volatility in sterling, he added. “The pound would likely rally hard in the event of the deal passing (unlikely). And while the consensus indicates the pound falling hard on a General Election being called, you could see such a scenario being bullish for sterling as it would imply a delay to Brexit and the possibility of a) a much softer version of Brexit than currently on the table, and b) raise the prospect of a second referendum.
“Whilst a fresh election would mean more uncertainty, and failure of May’s deal could provoke wild short-term gyrations until order is restored, the implications are such that it may prove a positive for the currency in the medium to long term. Nevertheless, sterling is in for a rough ride whatever happens – tin hats time.”
Miners were the standout gainers, with Antofagasta, Glencore, Rio Tinto and Anglo American all in the green on the back of the China news.
Spirent Communications surged as the communications technology company said it expects to deliver a 30% year-on-year rise in adjusted operating profit to between $75m and $77m, exceeding market expectations.
Recruiter Hays rallied as it posted 8% growth in second-quarter net fees.
Elsewhere, Persimmon slipped even as the housebuilder said it expected 2018 pre-tax profits to be modestly ahead of current market consensus, having benefited from new developments opened through the year.
Emerging-markets focused asset manager Ashmore was on the back foot after saying that assets under management grew in the $0.3bn in the past quarter as positive net inflows were counterbalanced by negative investment performance.
Provident Financial was the worst performer on the FTSE 250 as it warned that full-year profits would be towards the lower end of market expectations due to “modestly higher than expected” impairments.
In broker note action, Weir was upgraded to ‘buy’ at Societe Generale, while Cairn Energy was cut to ‘equalweight’ at Morgan Stanley and Faroe Petroleum was downgraded to ‘hold’ at Jefferies.
IMI was downgraded to ‘hold’ at SocGen, while Sanne Group was initiated at ‘overweight’ by JPMorgan.
