London stocks pushed to six month highs on Wednesday, on signs that Theresa May was shifting towards a softer Brexit and thanks to reports of continued progress in US-China trade talks.
The FTSE 100 was 0.37% higher at 7,418.28 as the pound added up 0.34% against the US dollar to 1.31748 and was flat versus the euro at 1.1720, having been knocked-off earlier highs at 1.1761 after the release of disappointing services data.
In parallel, the second-tier index was up by 1.21% to 19,563.44.
May met with Labour leader Jeremy Corbyn to break the deadlock, with the latter telling the Mirror that talks had gone “very well” even as, in the background, Bank of England Governor, Mark carney, told Sky News the risk of a no-deal Brexit had become “alarmingly high”.
Carney reportedly also labelled suggestions that a hard Brexit could be managed “absolute nonsense”.
Currency analyst Jane Foley at Rabobank said: “However, given the time pressures that are now presenting themselves, there remains a strong risk that a compromise could be too difficult to thrash out. In these circumstances there is speculation that May could ask parliament to vote for different options in a process agreed with Corbyn. This could potentially pit her Withdrawal Agreement against Labour's proposals in a vote and could leave the possibility of a confirmatory referendum on the table.”
UK services data revealed that activity in the sector, which accounts for the bulk of the British economy, shrank in March, the first drop in more than two-and-a-half years, as Brexit uncertainty curtailed spending.
The IHS Markit/CIPS UK services purchasing managers' index was 48.9 in March, down from 51.3 February and the first time it has been below the 50.0 no-change level since July 2016. Analysts had pencilled in a reading of 50.9.
Aside from the dip immediately after the referendum on the UK's membership of the European Union, the March figure is the joint weakest seen over the past decade, equalling a previous low in December 2012.
While the Footsie was being held back by sterling, Europe's main indices were firmly in the green, underpinned by a solid readings on Chinese services, overnight, and out of Germany and Spain.
But some economists warned that downside risks to Eurozone growth were “intensifying”, with weakness from manufacturing threatening to undermine strength in services.
Also helping to boost sentiment was a report that the US and China were closer to agreeing a deal on trade, ahead of the resumption of talks between the two sides in Washington later. According to the Financial Times, the two sides have resolved most issues surrounding a trade agreement but have not decided what happens with existing tariffs on both sides.
In equity markets, banks and housebuilders rallied as investors welcomed May's softer stance on Brexit, with Taylor Wimpey, Barratt Developments, RBS and Lloyds all firmer.
Tesco was a high riser after Goldman Sachs reiterated its 'buy' rating on the stock as it pointed to building momentum.
Bus and rail operator Stagecoach surged after saying that its adjusted earnings per share forecasts have increased since its interim results in December thanks to strong trading and positive progress in its rail division.
IP Group gained after the FT reported that gene analysis company Oxford Nanopore, in which it has an 18.2% stake, has told investors that it plans a stock market listing within 12 months.
Babcock advanced as the aerospace and defence group appointed former Royal Dutch Shell executive Ruth Cairnie as its new chair, while Just Group was boosted by an upgrade to 'neutral' at JPMorgan.
Quilter edged up after it and its adviser network Intrinsic agreed a recommended takeover of AIM-listed Lighthouse for £46.2m in cash, adding 400 advisers to Intrinsic's 3,500.
On the downside, exporters such as Diageo, Unilever and Reckitt Benckiser were all on the back foot as the pound strengthened.
Luxury brand Burberry was in the red as Bank of America Merrill Lynch downgraded the stock to 'underperform' from 'neutral' and JPMorgan cuts its full-year core profit estimate for the group by 6%, arguing that it's highly exposed to Brexit-related sterling volatility.
Plus500 lost ground as CMC Markets slumped on the back of a profit warning and news that its chief operating and financial officer was leaving, with shares of the latter plumbing a fresh 52-week low during the session.
FTSE 100 (UKX) 7,418.28 0.37%
FTSE 250 (MCX) 19,563.44 1.21%
techMARK (TASX) 3,578.68 0.81%
FTSE 100 – Risers
Taylor Wimpey (TW.) 186.21p 4.35%
Persimmon (PSN) 2,241.00p 3.65%
International Consolidated Airlines Group SA (CDI) (IAG) 528.60p 3.65%
Paddy Power Betfair (PPB) 6,246.00p 3.13%
Kingfisher (KGF) 247.20p 3.08%
Ferguson (FERG) 5,210.00p 3.04%
Just Eat (JE.) 787.60p 2.95%
Hargreaves Lansdown (HL.) 2,006.00p 2.94%
Fresnillo (FRES) 878.80p 2.82%
CRH (CRH) 2,496.00p 2.81%
FTSE 100 – Fallers
Imperial Brands (IMB) 2,519.50p -4.13%
Coca-Cola HBC AG (CDI) (CCH) 2,571.00p -2.54%
Burberry Group (BRBY) 1,934.00p -2.03%
British American Tobacco (BATS) 3,108.00p -1.87%
AstraZeneca (AZN) 6,165.00p -1.60%
Diageo (DGE) 3,102.00p -1.29%
SSE (SSE) 1,166.00p -1.02%
NMC Health (NMC) 2,416.00p -0.94%
GlaxoSmithKline (GSK) 1,587.60p -0.84%
Ocado Group (OCDO) 1,368.00p -0.69%
FTSE 250 – Risers
Dunelm Group (DNLM) 909.00p 5.25%
Intermediate Capital Group (ICP) 1,132.00p 4.91%
Metro Bank (MTRO) 865.50p 4.85%
CYBG (CYBG) 210.90p 4.25%
TBC Bank Group (TBCG) 1,604.00p 4.16%
Renishaw (RSW) 4,184.00p 4.13%
Bellway (BWY) 3,151.00p 4.13%
Howden Joinery Group (HWDN) 515.60p 4.04%
Royal Mail (RMG) 257.70p 3.95%
Aston Martin Lagonda Global Holdings (AML) 1,039.00p 3.94%
FTSE 250 – Fallers
Funding Circle Holdings (FCH) 365.00p -4.45%
Polymetal International (POLY) 840.00p -2.10%
Provident Financial (PFG) 505.00p -1.98%
Saga (SAGA) 106.80p -1.57%
Bakkavor Group (BAKK) 120.40p -1.47%
Dechra Pharmaceuticals (DPH) 2,616.00p -1.36%
FDM Group (Holdings) (FDM) 927.00p -1.28%
Hochschild Mining (HOC) 204.80p -1.25%
Telecom Plus (TEP) 1,500.00p -1.19%
Inmarsat (ISAT) 541.80p -1.17%