London stocks were still hugging the flat-line by midday on Wednesday, underperforming their European peers as sterling held firm on signs that Theresa May was shifting towards a softer Brexit.
The FTSE 100 was steady at 7,389.38 as the pound pushed up 0.3% against the dollar to 1.3177 and traded flat versus the euro at 1.1718, off earlier highs after the release of disappointing services data.
In a speech after a marathon cabinet meeting on Tuesday, the Prime Minister said she will seek a short extension to Article 50, voiced her aversion to a no-deal Brexit and called for urgent talks with Labour leader Jeremy Corbyn to break the deadlock.
Currency analyst Jane Foley at Rabobank said: “Counter to the majority view of her own cabinet PM May has turned away from risking a no deal Brexit on April 12 in favour of a last ditch attempt to scrabble together a deal with the Labour Party. Labour leader Corbyn is expected to look to protect his party's red lines which include a customs union and workers' rights.
“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.”
May plans to ask the EU for a short extension, potentially to 22 May, at its emergency summit next week, amid speculation that the EU would favour a longer extension.
UK services data did nothing to help the tone in London markets, as it revealed that the sector saw business activity ease in March, with the first decline 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 that 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 FTSE was being held back by sterling, Europe's main indices were firmly in the green, underpinned by solid Chinese services figures. The Caixin services purchasing managers' index rose to a 14-month high of 54.4 last month from 51.1 in February, beating expectations for a reading of 52.3.
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 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.
FTSE 100 (UKX) 7,389.38 -0.02%
FTSE 250 (MCX) 19,480.70 0.78%
techMARK (TASX) 3,559.30 0.26%
FTSE 100 – Risers
Taylor Wimpey (TW.) 185.70p 3.60%
Persimmon (PSN) 2,230.00p 3.15%
International Consolidated Airlines Group SA (CDI) (IAG) 525.80p 3.10%
easyJet (EZJ) 1,065.50p 2.80%
Barratt Developments (BDEV) 623.80p 2.77%
Royal Bank of Scotland Group (RBS) 254.70p 2.58%
Lloyds Banking Group (LLOY) 65.00p 2.52%
Standard Chartered (STAN) 648.40p 2.50%
Smurfit Kappa Group (SKG) 2,300.00p 2.50%
Kingfisher (KGF) 246.50p 2.49%
FTSE 100 – Fallers
Burberry Group (BRBY) 1,905.00p -3.50%
Imperial Brands (IMB) 2,558.00p -2.66%
British American Tobacco (BATS) 3,101.00p -2.44%
Coca-Cola HBC AG (CDI) (CCH) 2,588.00p -1.90%
Diageo (DGE) 3,087.00p -1.72%
GlaxoSmithKline (GSK) 1,574.40p -1.66%
Unilever (ULVR) 4,324.50p -1.56%
AstraZeneca (AZN) 6,176.20p -1.42%
Reckitt Benckiser Group (RB.) 6,320.00p -1.37%
Compass Group (CPG) 1,783.00p -1.33%
FTSE 250 – Risers
Stagecoach Group (SGC) 164.10p 6.01%
Metro Bank (MTRO) 871.50p 5.57%
Royal Mail (RMG) 258.20p 4.07%
Bellway (BWY) 3,141.00p 3.80%
CYBG (CYBG) 209.75p 3.68%
Ferrexpo (FXPO) 278.10p 3.54%
Grafton Group Units (GFTU) 848.50p 3.41%
Crest Nicholson Holdings (CRST) 383.20p 3.40%
Acacia Mining (ACA) 199.80p 3.26%
Bovis Homes Group (BVS) 1,107.00p 3.17%
FTSE 250 – Fallers
Bakkavor Group (BAKK) 118.80p -2.78%
Rank Group (RNK) 158.20p -1.74%
Dechra Pharmaceuticals (DPH) 2,610.00p -1.58%
Stobart Group Ltd. (STOB) 149.60p -1.58%
Funding Circle Holdings (FCH) 376.00p -1.57%
FDM Group (Holdings) (FDM) 925.86p -1.40%
Daejan Holdings (DJAN) 5,910.00p -1.34%
Polymetal International (POLY) 847.00p -1.28%
Indivior (INDV) 97.78p -1.13%
Telecom Plus (TEP) 1,502.00p -1.05%