The leading stock benchmark in London has moved higher this morning as the FTSE 100 seems to be giving fairly short shrift to the escalating geopolitical tensions surrounding North Korea. The pound is little changed on the day, despite the release of the UK services PMI for August, which fell to an 11-month low.
UK services sector growth cools
The latest release suggests a weaker than expected expansion in the UK services sector of late with the PMI reading for August coming in at 53.2 vs an expected 53.5 . The overall trend in this data point since the EU referendum has been fairly positive with the majority coming in above forecast after the initial panic had subsided. However this above forecast performance may be coming to an end with the two prior readings both coming in inline with consensus forecasts before today’s print saw the index fall to an 11-month low.
Ongoing Brexit uncertainty starting to take its toll
Despite being almost 6 months since Article 50 was triggered, there has been next to no progress made on Brexit terms, with both parties still seemingly unwilling to cede the necessary ground to begin the discussions in earnest. Today’s release suggests that this could be beginning to weigh on the largest sector of the UK economy which has, up until now, been remarkably robust in the face of huge uncertainty. The print is far from disastrous, but it does reveal a cooling off in the impressive performance seen since last June, and whilst a dramatic slowdown in the economy now seems unlikely due solely to Brexit it could well prove to be a persistent headwind that weighs on business activity for the foreseeable future.
GBP susceptible to further declines
In terms of market reaction the pound has dipped towards its lowest level of the week against the US dollar, holding just above the 1.29 handle. The EURGBP remains not far from its highest level in 8 years (barring the flash crash) and there’s a growing feeling that the pound remains susceptible to more downside ahead.
Retailers on the rise
Marks & Spencer and Next are amongst the biggest gainers this morning, with both retailers rising in excess of 1% and currently sitting towards the top of the benchmark. Barratt Developments (LON:BDEV) is another notable riser, with the housebuilder seeing its stock rise to a 52-week ahead of its earnings release scheduled to be announced before the opening bell tomorrow. The stock was one of the worst hit in the immediate fallout from the Brexit vote, with more than a third of the firm’s market value wiped off in the weeks that followed, but now not only has the price recovered those losses but it in fact trades above pre-referendum levels. Provident Financial (LON:PFG) is seeing some fairly substantial selling today with a decline of around 5% at the time of writing. The strong bounce of the multi-decade lows may have run its course for now and investors may be looking for a retest before deciding whether the worst is over for the under fire lender.