Stocks Struggle As Pound Hits Post-Brexit Highs

LONDON (Alliance News) - Shares in London were lower at midday Friday, sterling's surge pushing stocks down as the currency was further fuelled after external Monetary Policy Committee member Gertjan Vlieghe said interest rates could rise "in the coming months".

"Though the pound reacted to the Bank of England's Thursday statement with little ambiguity, comments from MPC member Vlieghe has only given the currency further reason to get geared up for a rate hike before the end of the year," said SpreadEx analyst Connor Campbell.

The MPC voted 7-2 on Thursday to hold the key interest rate at a record low 0.25%, and all nine members voted to maintain quantitative easing at GBP435 billion.

According to the minutes, all MPC members agreed that "monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations" if the UK economy follows a path consistent with the central bank's August Inflation Report.

Sterling, which rose on Thursday after the hawkish tone of the MPC's minutes, further jumped after Vlieghe, widely known as a dove, spoke at the Society of Business Economists' Annual conference on Friday morning.

"If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months," Vlieghe said at the conference.

Sterling surged following his comments, surpassing the USD1.36 mark for the first time since the UK's decision to leave the European Union in June 2016 to hit an intraday high of USD1.3616.

The pound was quoted at USD1.3592 Friday midday, compared to USD1.3394 at the close on Thursday.

"As has tended to be the case this month, the FTSE was made miserable by the pound's renewed confidence, plunging 1.2% to strike its worst price since the end of April," said Campbell.

The FTSE 100 index of large-caps was down 1.2%, or 86.20 points, at 7,209.19 Friday midday. The mid-cap FTSE 250 index was down 0.9% at 19,347.02, and the AIM All-Share index was down 0.7% at 993.02, pushed below the 1,000 mark earlier in the session.

The BATS UK 100 index was down 1.3% at 12,240.78. The BATS 250 was down 1.0% at 17,601.31, while the BATS Small Companies up 0.1% at 12,133.

In London, JD Wetherspoon was by far the best mid-cap performer, up 11% after the UK pub chain said profit increased in its recent financial year and has experienced a "positive start" to its current year.

Pretax profit rose 16% in the year ended July 30 to GBP76.4 million from GBP66.0 million a year earlier as revenue rose 4.1% to GBP1.66 billion from GBP1.60 billion. Like-for-like bar sales increased by 3.1%, while food sales increased by 5.7%.

Wetherspoon proposed a final dividend of 8.0 pence, in line with the year before, bringing its total dividend for the year to 12.0p, similarly in line with a year earlier.

Since the year end, the company said like-for-like sales have risen by 6.1%, but noted that this "encouraging" performance and "positive" start is "very unlikely" to continue for the rest of the year.

"This is a positive start, but is for a few weeks only - and is very unlikely to continue for the rest of the year. Comparisons will become more stretching - and sales, which were very strong in the summer holidays, are likely to return to more modest levels," said Chairman Tim Martin.

Investec was down 2.4% after it said it expects "mixed economic backdrops" experienced in its first half to persist in the remainder of the year.

The Anglo-South African investment bank and wealth management firm said the UK economy has been growing at a slower pace as Brexit continues to create uncertainty, while business and consumer confidence "remain low" in South Africa.

Despite this, Investec said its operating profit for the half is expected to be "comfortably ahead" of the prior year, with revenue also likely to increase year-on-year. Investec added that the appreciation of the South African rand against the pound has had a positive impact on its results.

Meanwhile, Next was the best large-cap performer, up 0.9% as the fashion retailer extended gains after raising its full-year sales and profits forecasts on Thursday.

WM Morrison Supermarkets also was among the best performers in the FTSE 100, up 0.4%. Shares were rebounding after closing down 5.1% on Thursday.

The grocer had reported Thursday growth in profit and revenue in the first half of its financial year that beat expectations, after previously warning on uncertainties as a result of the devalued pound.

Barclays said that Morrisons second quarter like-for-like sales were slightly weaker than expected, coming in at 2.1% compared to the bank's forecast of 2.8%, a representing a slowdown from the 3.0% growth in the first quarter.

In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were both down 0.2%.

Figures from Eurostat on Friday showed Eurozone labour costs annual growth accelerated in the second quarter after easing in the previous three months. Hourly labour costs for the whole economy grew 1.8% year-on-year in the second quarter, faster than the 1.4% rise in the prior month. During the fourth quarter last year, the rate of growth was 1.6%.

The wages and salaries component rose 2.0% in the June quarter after a 1.3% climb in the previous three months. Non-wage costs climbed 0.8% following a 1.6% increase.

"Today's euro-zone labour costs data reinforce our view that the European Central Bank will set out in October its plans to taper its asset purchases to zero in the first nine months of 2018," said Capital Economics.

The euro was slightly higher following the data, quoted at USD1.1947 compared to USD1.1882 at the London close on Thursday.

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

The economic calendar on Friday has retail sales figures from the US at 1330 BST.