Stocks End Higher As Brexit Talks Resume

Stocks ended higher on Monday, as commodity firms benefited from stronger-than-expected growth in the Chinese economy to help support the FTSE 100, while sterling took a slight knock as the second round of Brexit negotiations kicked off.

The FTSE 100 index closed up 0.4% or 25.74 points at 7,404.13. The FTSE 250 ended up 0.6%, or 112.23 points, at 19,520.59, and the AIM All-Share closed 0.2% higher, or 1.45 points, at 955.66.

The BATS UK 100 ended up 0.7% at 12,578.69, the BATS 250 closed up 0.8% at 17,754.91, and the BATS Small Companies ended 0.2% higher at 11,947.80.

"The FTSE remained far and away Monday's best performer, even if it fell from its midday peak ... thanks to the dual boosts of some China-inspired gains in the commodity sector and a Brexit-dragged showing from sterling," said SpreadEx analyst Connor Campbell.

The European Commission's Chief Negotiator Michel Barnier and UK Brexit Secretary David Davis met in Brussels for the second round of Brexit talks, as both sides look to strike an agreement on key areas before they proceed to negotiating a future trade relationship. Davis said talks were to delve into the "substance of the matter".

"It's four categories really. The issue of citizens' rights, the issue of finance, the issue of separation issues and, of course, separately, Northern Ireland," said Davis.

Barnier said he would be in contact with Davis "throughout the week" in discussions due to last four days. Soon after the formal opening of discussions, Davis set off back to London, leaving officials to get on with negotiations until he returns to Brussels on Thursday for a press conference with Barnier.

Negotiations kicked off as British firms said Brexit has affected their investment decisions, according to a survey from the Confederation of British Industry. Over 40% of respondents said Brexit influenced their decisions and 98% of them said that the impact has been negative.

Companies said that general uncertainty over the UK's future relationship with the EU has been the negative factor, while the weakness of sterling against the dollar was the only positive contributor. Almost 60% of firms that responded to the survey said that Brexit had not affected their investment decisions.

The talks are taking place against a backdrop of increasingly bitter and public feuding among UK ministers over the government's Brexit strategy. Over the weekend, Chancellor of the Exchequer Philip Hammond angrily accused cabinet rivals of trying to undermine his agenda for a "softer" business-friendly Brexit that prioritised jobs and the economy.

One unnamed Cabinet minister was reported to have hit back, claiming Hammond was part of an attempt by "the Establishment" to prevent Britain ever leaving the EU, according to the Daily Telegraph.

The disputes will be seen as further evidence of Prime Minister Theresa May's weakness after seeing her Conservative party's majority in the House of Commons wiped out in last month's general election.

The prime minister will use Tuesday's regular cabinet meeting to "remind" ministers that they should maintain silence about the content of meetings and focus on their job of delivering for the public, May's official spokesman told reporters on Monday.

Meanwhile, UK house prices increased only marginally in July as subdued wage growth weighed on affordability, property website Rightmove reported. Asking prices edged up 0.1% in July from June. On a yearly basis, house prices advanced 2.8%.

The pound was quoted at USD1.3058 at the London equities close, edging down from USD1.3089 at the same time on Friday.

"The pound is set to jump back into the spotlight tomorrow morning with the release of the latest inflation reading. Analysts are expecting the figure to remain unchanged at a still eye-watering 2.9%, though it’s worth noting that the number has outperformed forecasts for the last four months in a row," said SpreadEx's Campbell.

The euro stood at USD1.1466 at the European equities close against USD1.1420 at the Friday close.

In mainland Europe, the DAX and CAC spent the day flitting from red to green and back again. The CAC 40 in Paris ended down 0.1%, while the DAX 30 in Frankfurt ended 0.4% lower.

Final data from Eurostat showed eurozone consumer inflation eased slightly to 1.3% year-on-year in June from 1.4% in May. The rate came in line with the flash estimate published on June 30. This was the weakest rate seen so far this year. The European Central Bank targets inflation "below, but close to 2%".

On a monthly basis, consumer inflation remained flat in June, reversing from a 0.1% decline seen in May. Core inflation that excludes energy, food, alcohol and tobacco, increased to 1.1% year-on-year in June, in line with preliminary estimate, from 0.9% in May.

Stocks in New York were struggling to find gains at the London equities close. The DJIA, having closed at a record high on Friday, was trading flat, while the S&P 500 index and the Nasdaq Composite were both trading 0.1% higher.

"US markets have begun the day in tentative fashion, and while we have had earnings from Blackrock the day has been quiet so far. The drumbeat of US earnings gets steadily louder however, with more bank earnings tomorrow," said IG analyst Chris Beauchamp.

Investment management giant Blackrock reported a rise in profit in the second quarter of 2017, but missed analyst expectations for revenue. For the second quarter, net income attributable to BlackRock increased 9% to USD857 million from last year's USD789 million. Revenue for the quarter grew 6% to USD2.97 billion from USD2.80 billion in the prior year. Analysts expected revenues of USD3.01 billion for the quarter.

Brent oil was quoted at USD48.83 a barrel at the close, barely changed from USD48.64 at the same time on Friday. After the London equities close on Friday, the Baker Hughes report showed the number of active rigs in the US increased by two to 765 rigs in one week.

Gold gained ground to help gold miners rise with the wider mining sector. An ounce of the precious metal was quoted at USD1,234.13 at the London equities close against USD1,228.17 an ounce at the same time on Friday. Fresnillo closed up 2.4% while Randgold Resources ended the day 1.2% higher.

The FTSE 350 Mining sector closed up 1.3%. Miners were benefiting from China's National Bureau of Statistics data showing that the country's economy surged 6.9% in the first half of the year, driven by consumer spending and trade.

The economy grew by 6.9% in the second quarter, the same pace as in the first quarter. Analysts had predicted a slight slowdown in the second quarter, to growth of 6.8%. The Chinese government has set an economic growth target this year of about 6.5% "or higher if possible," the lowest economic growth target in 25 years.

Ashtead Group closed 1.8% higher, on the read across from the acquisition of Neff Corp by rival H&E Equipment Service on Friday. Both are US-based rivals of the London-listed equipment rental company.

Broadcaster ITV closed up 1.7% after the news that Carolyn McCall will become its chief executive, stepping down from the same role at the helm of airline easyJet, which closed up 1.4%.

McCall is expected to leave easyJet at the end of the year and the search for her successor has already commenced. ITV also released at statement confirming the report, noting that McCall will take on her new role at the company on January 8.

In the FTSE 250, Carillion ended up 20%, Balfour Beatty ended 3.1% higher and Kier Group closed up 1.9% - after they all won contracts for the construction of high speed rail line HS2, a 190-kilometre high speed line linking London with Birmingham and the West Coast Main Line near Lichfield that is due to open in 2026.

The award meant Carillion snapped a five-day decline following last Monday's dramatic announcement that its chief executive had departed as it launched an "all options" strategic review after booking a huge provision on contracts.

Weir Group ended up 8.7%, after the pumps and valves maker said it now expects "strong" constant currency revenue and profit growth for the full year, following a recovery in the North American oil and gas markets.

TalkTalk Telecom Group was among the worst mid-cap performers, ending down 2.9%, after the home phone and broadband provider was downgraded to Underperform from Neutral by Macquarie.

The economic calendar on Tuesday starts with China's house price index at 0230 BST. The UK consumer, producer and retail price indices are at 0930 BST, while Germany's ZEW survey is at 1000 BST. US export and import price indices are at 1330 BST, while the Redbook index is at 1355 BST. The API crude oil stock change is at 2130 BST.

BoE Governor Mark Carney speaks at the Winchester Cathedral at the unveiling of the new GBP10 note at 1430 BST.

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