Brexit Progress Fuels Sterling; US Data In Focus

LONDON (Alliance News) - The FTSE 100 Friday midday continued to retreat from Thursday's all-time high, as the pound was gripped by renewed optimism over the progress of Brexit negotiations, with GKN also dragging on the index after its slight profit warning was ill-received by investors.

Attention will be on the US this afternoon, to see whether consumer price index and retail sales figures both due at 1330 BST support expectations for a rate rise in December.

The FTSE 100 index was down 0.3%, or 21.89 points at 7,534.35 Friday midday. The FTSE 250 index was up 0.1% at 20,270.04, marking a new all-time high for the mid-cap index, and the AIM All-Share index was down 0.1% at 1,029.18.

The BATS UK 100 index was down 0.2% at 12,808.67. The BATS 250 was up 0.2% at 18,493.43, while the BATS Small Companies was down 0.1% at 12,471.4.

Sterling was quoted at USD1.3293 Friday midday, up from USD1.3166 at the London equities close on Thursday.

"It appears, perhaps, that the sands are shifting in the EU's hitherto resolute position. Reports in German newspapers about a transitional deal, plus the EU's own internal discussions about trade talks with the UK, plus Barnier's hints about making progress in talks in coming months, have all combined to provide what is a relatively optimistic appraisal of the situation," said IG chief market analyst Chris Beauchamp.

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 in a move which could offer Prime Minister Theresa May hope for talks.

The draft conclusions for next week's European Council summit of EU leaders, which are subject to change, calls for work to continue to achieve "sufficient progress" on withdrawal issues of a financial settlement, the Irish border, and citizens' rights, to unlock the second stage of talks to focus on trade.

But it also warns that Britain has not made a "firm and concrete" commitment on what Brussels sees as its financial obligations.

"The deadlock between the two sides still persists, but if the EU are getting their house in order it is an optimistic sign," noted David Madden, market analyst at CMC Markets.

Sterling dropped on Thursday, hitting an intraday low of USD1.3120, after EU chief negotiator Michel Barnier said Brexit negotiations had reached a "deadlock". The comments came during a press conference with UK Brexit Secretary David Davis following the conclusion of the fifth round of discussions.

Barnier said the recently-ended round of negotiations ended without making any "great steps forward" and there was "deadlock" on the UK's financial settlement, which is "very disturbing for thousands of project promoters in Europe and it's disturbing also for taxpayers."

These remarks overshadowed some more promising comments made by the EU's chief negotiator at the press conference.

"I've been saying since the Florence speech that there is a new momentum, and I remain convinced today that with political will, decisive progress is within our grasp in the next two months," said Barnier on Thursday.

In European equities, the CAC 40 index in Paris was flat and the DAX 30 in Frankfurt was slightly higher Friday midday at 12,987.91, having hit a new all-time high of 13,003.14 earlier in the session.

Stocks in New York are called for a flat to higher open on Friday, with the Dow Jones Industrial Average, the Nasdaq Composite called up 0.1%, and the S&P 500 index seen flat.

Earnings season continues in earnest on Friday on Wall Street.

"After JPMorgan and Citigroup beat estimates yesterday, we will wait to see if Bank of America can repeat the trick," said IG's Beauchamp. Wells Fargo will also release third quarter results this afternoon.

The remainder of the economic calendar for Friday sees data from the US, with retail sales and the September consumer price index both due this afternoon.

The Michigan consumer sentiment index is due at 1500 BST, while the Baker Hughes US oil rig count is at 1800 BST.

"Today's US CPI and retail sales figures will be the key event of the day, as investors wait to see whether the data aligns with the more dovish views of some Federal Open Market Committee members," said Beauchamp.

"Consumer spending is a crucial component of the US economy and something that has underwhelmed throughout the recovery and has been on a downward trajectory this year. A big spike is expected this month but once again this is likely to be a temporary bounce," noted Oanda senior market analyst Craig Erlam.

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

Back on the London Stock Exchange, aerospace engineer GKN was by far the worst large-cap performer on Friday, down 8.7%, after warning its 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.

"When you take into account the company had a pretax profit in excess of GBP1.10 billion last year, these one-off costs are relatively small, but whenever investors hear profit warning, they run for the hills," said David Madden, market analyst at CMC Markets.

At the other end of the index were blue-chip miners, higher following the release of Chinese trade data overnight.

Chinese imports surged 18.7% in September from a year ago, faster than the expected growth of 15.0%, exceeded expectations on improving domestic demand.

"The country is an enormous importer of minerals so stocks like Rio Tinto, Anglo American and Glencore are higher on the day," CMC's Madden.

In addition, 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 was up 1.8%, BHP Billiton up 1.3%, Glencore up 1.4%, and Anglo American up 0.8% Friday midday. The FTSE 350 mining sector was the best performing sector, up 1.2%.

Over in the FTSE 250, Provident Financial was enjoying some gains in a year that has seen a two profit warnings from the firm, jumping up 9.5% Friday midday.

The subprime lender said a recovery plan for its home credit business has been developed under new leadership to "re-establish relationships with customers, stabilise 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 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, and said the search for a new chief executive is underway, after previous CEO Peter Crook resigned in August following the lender's second 2017 profit warning an withdrawal of an interim dividend.

Ashmore Group was up 7.0%, after the specialist emerging markets asset manager said it had USD65.00 billion worth of assets under management at the end of September compared to USD58.70 billion at the end of June.

The rise was down to its positive investment performance of and higher net inflows.

Man Group was up 3.4% after announcing it is to buyback USD100 million worth of shares while still considering acquisition opportunities. Man Group said funds under management at the end of September had climbed to USD103.5 billion from USD95.90 billion at the end of June, up 28% in the year-to-date.

At the other end of the index, companies fell as a result of broker rating changes.

TalkTalk Telecom Group was down 5.6% after being cut to Equal Weight from Overweight by Barclays, while Renewi was down 4.2% after being cut to Neutral from Outperform by Credit Suisse.