Sterling Dips Ahead Of UK PM's Key Brexit Speech

LONDON (Alliance News) - Stocks were higher Friday at midday as the pound declined ahead of UK Prime Minster Theresa May's Brexit speech in the Italian city of Florence at 1415 BST, the government hoping the talk will revive the negotiations following a recent lack of progress.

"UK markets are waiting in anticipation of today's appearance by Theresa May in Florence, with many hoping that today will represent a breakthrough moment in Brexit negotiations," said IG market analyst Joshua Mahony.

"There is a growing fear that without any progress in Brexit negotiations, we will see firms take business decisions based on an increasingly fearful outlook of the UK," Mahony added.

May is expected to tell European leaders in her speech this afternoon they have a "profound sense of responsibility" to agree good terms in Brexit negotiations.

Her direct pitch to the continent's leaders will be seen as a further attempt to try to bypass the formal talks led by Brussels's chief negotiator Michel Barnier, which have stalled over the financial settlement, citizens' rights, and the border between Northern Ireland and the Republic of Ireland.

She is also reported to be ready to give ground on the issue of citizens' rights for European Union nationals in the UK, enshrining the terms of any deal in a formal treaty.

Sterling was lower ahead of the speech, "as investors fret" over May's mid-afternoon address, SpreadEx analyst Connor Campbell said.

The pound quoted at USD1.3537 Friday midday, down compared to USD1.3555 at the London close on Thursday.

"How that speech is received – by both the Tories and the EU – could not only set the tone for the rest of the day, but whether or not sterling can continue its super September surge next week," Campbell added.

Sterling is up 4.8% in the month-to-date.

Among equities, the FTSE 100 index was up 0.3%, or 20.33 points higher, Friday midday at 7,284.23. The mid-cap FTSE 250 index was up 0.1% at 19,437.68, and the AIM All-Share index also up 0.1% at 992.20.

The BATS UK 100 index was up 0.2% at 12,375.10 midday. The BATS 250 was up 0.1% at 17,679.63, while the BATS Small Companies was down 0.2% at 12,077.48.

The Confederation of British Industry said Friday that manufacturers' order books softened in September but both total orders and export orders remained strong.

According to the latest monthly Industrial Trends Survey, a net balance of 7% of manufacturers said order books were above normal, but below August's 13%. The survey was conducted between August 24 and September 14.

The balance of manufacturers reporting a rise in export orders came in at 10% compared to 11% in August. A rounded balance of 28% expects output growth to accelerate in the coming quarter, with 39% forecasting volumes to increase, and 12% expecting a decline.

"Manufacturers continue to report solid growth in output, while total order books and export order books are holding firm," said Anna Leach, CBI Head of Economic Intelligence.

In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were up 0.5% and 0.3%, respectively, at midday.

Already released, flash data from IHS Markit on Friday showed Germany's private sector grew at the fastest pace in almost six-and-a-half years in September.

The composite output index rose unexpectedly for the consecutive second month in September, to 57.8 from 55.8 in August. This was the highest reading since April 2011, and was forecast to fall to 55.7.

The manufacturing Purchasing Managers' Index, expected at 59, climbed to 60.6 in September from 59.3 in August. The sector logged the sharpest monthly improvement in business conditions since April 2011.

The services PMI improved to a 6-month high of 55.6 from 53.5 in August. The score was above the expected 53.7.

The figures come ahead of the country's federal election on Sunday, in which Chancellor Angela Merkel is bidding for a fourth term in office.

Meanwhile, the eurozone private sector ended the third quarter on a strong note in September, with growth in activity picking up to its highest since May, flash data from IHS Markit showed.

The headline composite output index rose unexpectedly to 56.7 in September from 55.7 in August. The expected score was 55.6.

While service sector activity showed the largest rise since May, the increase in manufacturing output was the greatest since April 2011.

The services Purchasing Managers' Index increased to 55.6 from 54.7 in August. The score was forecast to rise slightly to 54.8. At the same time, the factory PMI climbed to 58.2 from 57.4 a month ago, while it was forecast to fall to 57.2.

The euro rose following the PMI data sets, hitting an intraday high of USD1.1998 but falling back slightly to be quoted at USD1.1975 midday, still up against USD1.1935 late Thursday.

"It is clear that there is a great renaissance throughout the manufacturing sectors of Europe. Given that the PMI surveys typically provide us with a leading indication of how businesses are faring, there is reason to believe that today's readings will provide a significant boost to eurozone third quarter growth prospects," said IG's Mahony.

European Central Bank Vice President Vitor Constancio is due to speak in Frankfurt at 1215 BST and 1415 BST, with the central bank's president, Mario Draghi, having already spoken in Dublin earlier in the day.

Draghi, addressing Trinity College, Dublin, said the strengthening of the recovery will continue to reduce the extent of youth unemployment.

In order to address structural causes of youth unemployment, a uniform degree of protection among workers, flexible labour arrangements, vocational training and trade openness are necessary conditions, he said.

Back in London, Smiths Group was the worst performer in the FTSE 100, down 3.7% after the engineer saw profit rise in its recently ended financial year, though underlying revenue decreased by 1%.

Smiths said reported revenue for the financial year to the end of July rose 11% to GBP3.28 billion from GBP2.95 billion last year, though declined by 1% on an underlying basis.

Reported pretax profit soared to GBP601.0 million from GBP346.0 million, aided by the positive effects of foreign currency translation which amounted to GBP421.0 million, bringing a gain on profit of GBP71.0 million.

The dividend was lifted 3% to 43.25 pence.

"The progress delivered in executing our strategy ensures that we're well positioned for the group to return to growth in 2018. As in previous years, we expect group performance to be weighted towards the second half," said Chief Executive Andy Reynolds Smith.

Smiths Group provided no update regarding its vacant chief financial officer position.

Miners Antofagasta and BHP Billiton were both down 1.0%, Anglo American down 1.2% and Glencore down 1.4%, all among the worst performers in the FTSE 100 index of large-caps.

"A drop in copper and iron ore prices has prompted a sell-off in mining stocks like Antofagasta, BHP Billiton, Anglo American and Glencore. The basic resources companies are some of the biggest fallers on the FTSE 100," noted David Madden, market analyst at CMC Markets.

Johnson Matthey was at the other end of the index, up 2.3% at 3,479.20 pence as the platinum and specialist chemical firm extended gains made on Thursday.

"Johnson Matthey had a stellar performance yesterday, and the positive run continues after a broker upgrade from Credit Suisse. The investment bank raised its price target for the company to 3,700p from 3,500p," added CMC's Madden.

The stock closed up 14% at 3,390.00p on Thursday.

Johnson Matthey had said on Thursday constant currency sales growth is expected to be around 6% year-on-year for the full year. It also said it is planning to make a further GBP50 million in savings over three years beginning in financial 2019. This is in addition to the GBP25 million in savings it announced in June.

Johnson Matthey also said it will make an initial investment of GBP200 million in battery material technology. This will "drive growth" in a market which it predicts could be worth more than USD30 billion once battery electric vehicles penetration increases to 10%, the firm said.

Pets At Home was the best mid-cap performer Friday, up 6.4% at 207.12p after Goldman Sachs raised the pet goods retailer's price target to 188p from 180p, keeping its Neutral rating on the firm.

John Laing Group also benefited from a broker rating change, up 1.4% after HSBC initiated the infrastructure project manager with a Buy rating.

In other company news, US-based hide-hailing app Uber will lose its licence to operate in London from September 30, the British capital's transport regulator said on Friday.

Transport For London said it has decided that Uber "will not be issued with a private hire operator licence" once its current licence expires on September 30.

It said an investigation concluded that Uber was "not fit and proper" to operate in London, citing concerns over public safety and security, including background checks on drivers.

Stocks in New York were called for a lower open on Friday, with the Dow Jones Industrial Average seen down 0.1%, the S&P 500 index seen down 0.2%, and Nasdaq Composite pointed 0.3% lower.

Still to come in the economic events calendar are US services and manufacturing PMI figures at 1445 BST. In addition, Federal Open Market Committee members Esther George and Steven Kaplan are due to give speeches at 1430 BST and 1800 BST, respectively.