London midday: FTSE stays up as housebuilders rally, pound slides

(Sharecast News) - London stocks were still up by midday on Thursday, helped by a weaker pound and strength in the housebuilding sector, but investors remained cautious overall as the conflict in the Middle East continued to escalate, with all eyes on Israel's next move. The FTSE 100 was up 0.3% at 8,314.38, while sterling was 1.1% lower against the dollar at 1.3121 after Bank of England governor Andrew Bailey told the Guardian that the central bank could become a "bit more aggressive" in cutting interest rates as long as news on inflation continued to be good.

A weaker pound tends to lift the top-flight index as around 70% of its constituents derive their earnings from abroad. Indeed, the UK index was outperforming its European peers, all of which were weaker, with the benchmark Stoxx 600 index down 0.6%.

Bailey told the Guardian he has been encouraged by the fact that cost of living pressures had not been as persistent as the BoE thought they might be. He said in an interview that if the news on inflation remained positive there was a chance the Bank could become "a bit more activist" in its rate-cutting approach.

Inflation currently stands at 2.2%, which is just above the BoE's 2% target.

Kathleeen Brooks, research director at XTB, said: "The pound was already selling off before Bailey's comments, and GBP/USD is down more than 1% so far this week, it is down from $1.34 at the start of this week to below $1.31 this morning.

"It has found decent support at $1.3170, however, this has been a bruising week for the pound, and $1.35 seems like a mountain to climb from here."

She said that part of the pound's selloff is due to external factors.

"As geopolitical risks in the Middle East have risen, the US dollar has caught a bid. The currencies that were most extended versus the USD have sold off rapidly, as investors have sought the safety of the USD.

"Hence, the pound and the yen were in the sellers' sights, as the markets scrambled to buy dollars. The pound is still the best performing currency in the G10 FX space so far this year, thus, if tensions escalate further, then we could see another leg lower for GBP/USD."

Investors were also mulling a survey out earlier which showed that business activity growth eased to a three-month low in September but prices charged inflation slowed.

The S&P Global services purchasing managers' index fell to 52.4 from 53.7 in August, coming in below the flash estimate of 52.8. Still, it remained above the 50.0 mark that separates contraction from expansion.

There was some more upbeat news on inflation, as the survey showed that prices charged inflation in the service sector - which acts as a barometer of domestic inflationary pressures - fell to the lowest in September since February 2021.

Tim Moore, economics director at S&P Global Market Intelligence, said: "The September PMI surveys suggest that the UK economy is still on a positive trajectory, with improving order books accompanied by cooling inflationary pressures.

"UK service providers indicated a moderate expansion of activity in September, fuelled by resilient business and consumer spending. However, the post-election rebound lost some momentum as output, new work and employment all increased at the slowest pace for three months.

"Robust domestic demand has been recorded throughout the third quarter of 2024, helping to offset a headwind from lacklustre export sales. Survey respondents linked rising volumes of total new work to renewed growth in the UK economy and the impact of domestic political stability on investment spending."

Moore said some service sector firms commented on delayed decision-making among clients due to uncertainty ahead of the Budget on 30 October. "However, the majority of survey respondents (56%) expect a rise in business activity during the year ahead, while only 11% forecast a downturn," he said.

In equity markets, Tesco shot to the top of the FTSE 100 as it lifted its annual profit guidance despite a slight slowdown in underlying sales growth in the second quarter.

Housebuilders were among the top performers after Bailey's comments, with Persimmon, Barratt, Vistry, Taylor Wimpey, Crest Nicholson and Bellway all higher. The sector was also boosted by data from Zoopla which showed that house sales rose in September at the fastest rate since the post-lockdown rebound.

SSP Group reversed earlier losses as it said it expected to deliver a large jump in full-year profits, despite weaker trading in Continental Europe, especially in France where demand during the Olympics was lower than anticipated.

The company, which operates food outlets at train stations and airports, said core profits for the year to September would come in at £350-360m, up from the £280m reported a year earlier and lower than planning assumptions of £375m at the top end.

Burberry was under the cosh as Stifel cut its price target on the shares to 720p from 800p and reduced its FY25 and FY26 sales forecasts by 8% and 10%, respectively.

Phoenix Group, Smith & Nephew, Weir Group, Kainos, TP Icap, TBC Bank and Hargreaves Lansdown all fell as they traded without entitlement to the dividend.

Market Movers

FTSE 100 (UKX) 8,314.38 0.28% FTSE 250 (MCX) 20,765.20 -0.09% techMARK (TASX) 4,843.77 -0.13%

FTSE 100 - Risers

Tesco (TSCO) 368.20p 3.75% Persimmon (PSN) 1,672.00p 2.96% Barratt Developments (BDEV) 486.30p 2.44% Rolls-Royce Holdings (RR.) 530.60p 2.27% Vistry Group (VTY) 1,314.00p 2.18% JD Sports Fashion (JD.) 143.25p 2.07% Taylor Wimpey (TW.) 166.45p 2.05% SSE (SSE) 1,909.50p 1.89% Pershing Square Holdings Ltd NPV (PSH) 3,564.00p 1.89% HSBC Holdings (HSBA) 687.40p 1.69%

FTSE 100 - Fallers

Phoenix Group Holdings (PHNX) 528.50p -4.86% Diploma (DPLM) 4,248.00p -4.19% Prudential (PRU) 703.80p -2.30% Anglo American (AAL) 2,440.00p -1.53% M&G (MNG) 204.60p -1.45% Smith (DS) (SMDS) 460.00p -1.33% Coca-Cola HBC AG (CDI) (CCH) 2,690.00p -1.32% Antofagasta (ANTO) 1,968.00p -1.28% Weir Group (WEIR) 2,130.00p -1.21% GSK (GSK) 1,478.00p -1.17%

FTSE 250 - Risers

Ninety One (N91) 180.50p 2.56% Bellway (BWY) 3,144.00p 2.34% Dr. Martens (DOCS) 55.80p 2.20% SDCL Energy Efficiency Income Trust (SEIT) 64.00p 2.07% Drax Group (DRX) 639.50p 1.67% Crest Nicholson Holdings (CRST) 191.10p 1.65% PureTech Health (PRTC) 144.60p 1.54% Fidelity China Special Situations (FCSS) 236.50p 1.50% Helios Towers (HTWS) 110.60p 1.47% Bank of Georgia Group (BGEO) 3,665.00p 1.24%

FTSE 250 - Fallers

Burberry Group (BRBY) 635.80p -3.90% Close Brothers Group (CBG) 359.80p -3.23% Kainos Group (KNOS) 844.00p -3.10% Wizz Air Holdings (WIZZ) 1,238.00p -2.98% Victrex plc (VCT) 932.00p -2.92% TP Icap Group (TCAP) 228.00p -2.56% Hargreaves Lansdown (HL.) 1,084.00p -2.52% RS Group (RS1) 780.00p -2.50% Spectris (SXS) 2,654.00p -2.35% Bodycote (BOY) 581.00p -2.35%