Brexit Hopes, Weak US Data Support Pound's Rise

A higher sterling, pushed upwards on optimism that Brexit negotiations could be progressing coupled with a weaker dollar due to soft consumer price index data, resulted in London's large-cap index ending Friday in the red.

"GBP/USD drove higher today after reports came out that the EU are working on a proposal for a post-Brexit trade deal with the UK, this announcement reversed the dip in the pound yesterday. The sell-off in the US dollar on account of the retail sales and inflation data from America not meeting expectations also helped sterling," said David Madden, market analyst at CMC Markets.

The dollar-earner heavy FTSE 100 index closed down 0.3%, or 20.80 points at 7,535.44, and ended the week 0.4% higher.

The FTSE 250 ended 8.27 points higher at 20,259.51, ending the week up 0.5%. The mid-cap index hit an all-time high of 20,300.41 earlier in the session. The AIM All-Share closed up 0.1%, or 1.45 points, at 1,031.26, ending the week 1.0% higher.

The BATS UK 100 ended up slightly lower at 12,835.26, the BATS 250 closed up 0.3% at 18,505.86, and the BATS Small Companies ended 0.1% lower at 12,470.24.

Still to come in UK economic events on Friday, Bank of England Governor Mark Carney is due to give an interview to CNBC at 1800 BST.

The pound was quoted at USD1.3299 at the London close on Friday, having hit near two week intra-day high of USD1.3338, up compared to USD1.3166 at the London equities close Thursday.

While sterling sank on Thursday after EU chief negotiator Michel Barnier said Brexit negotiations had reached a "deadlock," the pound recovered ground on Friday on reports that the EU was making its own arrangements when the UK leaves the bloc in 2019.

A document seen by reporters in Brussels on Friday suggested EU leaders and chief negotiator Michel Barnier could begin "internal preparatory discussions" on a future trade relationship and a transition deal, a move which could offer Prime Minister Theresa May hope for talks.

Sterling further strengthened on the weaker US data released on Friday.

"The dollar didn't get the hawkish data delivery it wished for this Friday – well, not quite anyway – leaving (an admittedly tiny) slither of doubt surrounding the potential December rate hike," said Spreadex analyst Connor Campbell.

The US Labor Department said its consumer price index climbed by 0.5% in September after rising by 0.4% in August, slightly below expectations of a 0.6% increase.

Excluding food and energy prices, core consumer prices inched up by 0.1% in September after edging up by 0.2% in August, again below forecasts of a 0.2% rise.

"With core US inflation rising by only 0.1% over the month, the case for a US rate rise isn't necessarily boosted heavily by today's inflation data, yet with retail sales rising sharply in September, there is reason to believe the consumer-reliant US economy will continue to grow healthily in the coming months," said IG market analyst Joshua Mahony.

The US Commerce Department released a report on Friday showing a significant jump in September retail sales.

Retail sales surged up by 1.6% in September after edging down by a revised 0.1% in August. Economists had expected retail sales to rise by 1.7%, compared to the 0.2% drop originally reported for the previous month.

Excluding a jump in auto sales, retail sales still shot up by 1.0% in September after climbing by 0.5% in August, well above expectations of a 0.3% increase.

"With the Fed constantly mentioning their concerns about weak US inflation – and how it imperils the chances of an interest rate rise before the end of the year – it [the consumer price index] was a miss the dollar wasn't willing to indulge," Campbell added.

While markets are expecting a rate rise in December - the US central bank having hiked rates twice this year in March and June - the Fed's concerns on persistent low inflation have led to doubts over the number of rate rises to be expected in 2018.

"Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also influence the developments that could prove more persistent," minutes from the Fed's September meeting, which were released on Wednesday, showed.

However, the central bank added: "Some other participants, however, were more worried about upside risks to inflation arising from a labor market that had already reached full employment and was projected to tighten further."

Stocks in New York were higher at the London equities close. The DJIA S&P 500 index were both up 0.3% and the Nasdaq Composite was 0.3% higher.

In the midst of earnings season in the US, Bank of America and Wells Fargo & Co reported third quarter earnings earlier on Friday.

Bank of America reported a higher profit in its third quarter, benefited by higher net interest income and lower provision for credit losses.

For the third quarter, net income applicable to shareholders climbed 15.1% to USD5.12 billion from USD4.45 billion last year. Earnings per share grew 17% to USD0.48 from USD0.41 a year ago.

Wells Fargo saw a drop in third quarter profit. The company's bottom line dropped to USD4.19 billion, or USD0.84 per share, compared with USD5.24 billion, or USD1.03 per share, recorded in the year ago quarter. Revenue for the quarter fell 1.8% to USD21.93 billion.

Attention will remain on the US in the late afternoon, with the Baker Hughes US oil rig count at 1800 BST and US President Donald Trump due to announce his strategy on Iran and the international agreement on Tehran's nuclear program at 1745 BST.

Trump is expected to distance his administration from the international deal on Iran's nuclear program by taking steps to inform Congress he does not believe Tehran is in compliance with the spirit of the agreement.

According to reports, Trump is expected to say that the agreement, reached in 2015 after years of negotiations between Iran and six world powers, is not in the national interest of the US.

The potential decision would stop short of the US completely scrapping the deal, and would put the deal into the hands of Congress, which could choose to re-impose sanctions on Iran that were lifted under the 2015 agreement.

In Paris, the CAC 40 ended flat, while the DAX 30 in Frankfurt ended up 0.1%, having hit an all-time high of 13,036.74 earlier in the session.

Focus will shift to Catalonia, once again next week, with Catalan President Carles Puigdemont given until 0900 BST Monday to offer a clarification on the region's independence declaration, as demanded by Spanish President Mariano Rajoy.

Puigdemont on Tuesday said the disputed October referendum gave his government a mandate to turn Catalonia into "an independent state," but the process should be frozen pending further talks, calling for "dialogue" with Madrid.

In response, Rajoy on Wednesday said that, if secession has been initiated, the Spanish government will take the step of invoking Article 155 of the constitution to assume full control of the region.

Rajoy then demanded that Catalonia's regional government needed to clarify whether it has formally declared independence.

The euro stood at USD1.1837 at the European equities close Friday, against USD1.1843 the same time the day prior.

Elsewhere, Chinese data showed imports jumped 18.7% in September, above the expected increase of 14.7%.

"Chinese trade data has, by and large, kept the FTSE afloat today, with a sharp rise in imports and exports driving the FTSE mining sector higher, with Rio Tinto, Glencore, and Anglo American the three market leaders today," said IG's Mahony.

The blue-chip miners were also higher after Deutsche Bank issued a research note raising its price targets on the mining stocks after raising its price estimates for a host of commodities, most notably for copper, zinc, nickel and coking coal.

Rio Tinto closed up 2.1%, BHP Billiton up 1.1%, Glencore up 2.4%, and Anglo American up 1.1% Friday midday. The FTSE 350 mining sector was the best performing sector, ending up 2.2%.

The Chinese data also helped to boost Brent.

"WTI and Brent Crude oil has lost ground in the past few hours but it is still up on day as the strong Chinese import data fuelled buying," CMC's Madden said.

Brent oil was higher, quoted at USD57.00 a barrel at the London equities close Friday, having hit a two week high of USD57.55, from USD55.90 at the equities close Thursday.

Meanwhile, gold was benefitting from a weaker dollar, quoted at USD1,299.92 an ounce at the London close on Friday, having traded at a near three-week high of USD1,302.32 earlier on Friday, and up against USD1,292.32 at the London close Thursday.

"Gold has traded above the USD1300 mark for the first time since late September as the weakness in the greenback has lifted the metal," said CMC's Madden.

Back on the London Stock Exchange, GKN was dragging on the large-cap index, closing down 6.9%.

The aerospace engineer warned its full-year results will be hit by GBP40.0 million worth of claims made against the company. The firm now expects its profit for 2017 will be "slightly above" that of 2016.

GKN reported a pretax profit of GBP292.0 million in 2016. When it released its interim results, the engineer said 2017 was expected to be "another year of growth".

The company said on Friday it has been made aware of two probable claims; one relating to GKN Aerospace and the other to GKN Driveline. Both claims are commercially sensitive with no additional information disclosable at this time, the firm said.

"Last year the company registered profits before tax of over GBP1.1 billion so the possible charges equating to GBP40 million is small by comparison," noted Madden.

Over in the FTSE 250, Aldermore overtook Provident Financial to end the best performer, closing up 19% at 303.50 pence.

Aldermore on Friday confirmed that it had received a 313 pence per share acquisition offer from FirstRand. Based on its issued share capital on Friday of 344.9 million shares, the deal is valued at over GBP1.00 billion.

The companies remain in talks regarding the possible offer. FirstRand has until November 10 to make a firm acquisition offer for Aldermore in accordance with UK takeover rules.

FirstRand later confirmed its bid for the Londno-listed retail bank.

"FirstRand has been assessing opportunities to build a sustainable long-term deposit franchise to fund its strategy to grow and diversify the revenues of its current UK business. The possible acquisition of Aldermore, with its unique operating model, market positioning and strength in deposit taking, would provide the ideal platform for FirstRand to fulfil this strategy on an accelerated basis," FirstRand said in a statement.

Just behind was Provident, which had spent much of Friday the best mid-cap performer, ending up 12%.

The subprime lender was enjoying a day of gains in a year which has seen two profit warnings - one in June, the other in August - wipe off 68% of its value since the start of 2017.

Provident on Friday said a recovery plan for its home credit business has been developed under new leadership to "re-establish relationships with customers, stabilize the operation of the business and improve collections performance."

Provident reduced its pretax profit guidance for its Consumer Credit division in August to a pre-exceptional loss of between GBP80 million to GBP120 million in 2017, from previous forecasts of a GBP60 million profit.

This drastically differed guidance was a result of the unsuccessful transition of its home credit sales force to full time employees from part-time self-employed agents.

Provident on Friday also confirmed that no dividend will be paid in 2017, following the scrapping of its interim dividend in August, and said the search for a new chief executive is underway. The previous CEO Peter Crook resigned in August.

Emerging markets-focused asset manager Ashmore Group ended up 5.7% after its assets under management jumped 11% in the first quarter of its financial year to USD65.0 billion.

Man Group closed up 3.2% after it saw positive fund growth and inflows in the third quarter of 2017, as it stated its intent to absorb research costs for the majority of its business.

In addition, the investment manager will repurchase up to USD100.0 million in shares, and will continue to review potential acquisition opportunities. However, it did not clarify exactly when the buyback will occur.

At the other end of the index wasTalkTalk Telecom Group ending 6.6% lower after being cut to Equal Weight from Overweight by Barclays, while Renewi, closed down 3.6% after being cut to Neutral from Outperform by Credit Suisse.

In the UK corporate calendar for Monday there are third quarter production results from midcap gold miner Polymetal International and a trading statement from electronic products designer Acal.

In the economic events calendar for Monday there are UK Rightmove house price index readings at 0001 BST, September inflation data from China at 0230 BST and Eurozone trade balance at 1000 BST. In addition, there is the deadline from the Spanish government to confirm if Catalonia has declared independence at 0900 BST.

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