| London close: Pound returns to pre-referendum levels, EasyJet takes off The pound notched up a 19-month high against the dollar on Tuesday to keep a lid on gains for London stocks as easyJet and a group of healthcare stocks led the march higher. The FTSE 100 added just over 16 points or 0.2% to close at 7,731.83, while the FTSE 250 was essentially flat at 20,671.20. Sterling spiked above $1.40 overnight and then again late on London's session, a level last seen before the Brexit vote in June 2016, but quickly fell back slightly to 1.3978, while it was down more than 0.2% against the euro at 1.1380. News that the UK has already "agreed in principle" to a Norway-style Brexit transition period in which it accepts all EU rules was a boost for the currency. There were also reports that the European Commission could be preparing to pay the cost of EU citizens' applications to remain living in the UK after Brexit. The pound's return to pre-Brexit levels was merely serving as a limiter to equity gains in London, said analyst Chris Beauchamp at IG. "There appears to be a real belief that the doom and gloom surrounding the UK has been overdone, so we can look forward to further gains for sterling. Whether this will translate into growth upgrades for the UK and thus a desire to own UK stocks, which remain chronically unpopular, remains to be seen" The weakness in the dollar was the major factor in sterling's gains, however, as the greenback fell against many currencies. "Post-shutdown euphoria has been replaced by a weary acceptance that we will probably have to do this all over again in just over two weeks. Why buy the greenback, when so many other economies can show solid growth without the government disruption so prevalent in the US at the moment?" Beauchamp wondered. Analyst James Hughes at Axitrader said the US dollar index had broken below some key support levels on the hourly chart, and hits its lowest level since 2014 at 90.15. "This move yet again highlights that despite the strength of the equity markets on Wall Street since Donald Trump took office we have seen a similar negativity on the greenback, with dollar weakness becoming a hallmark of the President first 12 months." MINERS HEAD LOWER Despite the weaker dollar, commodities stocks were another weight on the FTSE, with precious metals miners Fresnillo falling the most, one day before it is due to deliver its production report, ahead of steelmaker Evraz, diversified groups Anglo American and Glencore ahead of copper-focused Antofagasta as copper and silver both stumbled lower as the session wore on.
But a strong showing from EasyJet and its airline peers helped the top-flight index to keep its head above water, as the budget carrier reported a 14.4% increase in revenue for the first quarter of its financial year and said it had cut costs by 1.6%. It was also boosted by an upgrade to 'outperform' at RBC Capital Markets. IAG, despite missing out on an acquisition from the administrators of Air Berlin, and Wizz Air also gained. Wizz was also given a boost by chief executive Jozsef Varadi's interview with Italy's La Repubblica newspaper, where he said the airline would be interested in taking over Alitalia's short and medium-haul routes. Elsewhere, Sky advanced even as the competition regulator dealt a blow to 21st Century Fox and its planned takeover of the broadcaster. The Competition & Markets Authority said it has provisionally found that Fox taking full control of Sky "is not in the public interest" due to media plurality concerns, though it did offer some potential remedies. Shares in a trio of healthcare stocks, offering a defensive option for investors worried about a wider equity wobble, NMC Health, Mediclinic International and Smith & Nephew were looking hale and hearty. SSP surged almost 6% after the travel catering group posted a 13.5% jump in total revenue for the first quarter, while retailer Pets at Home also bounded 7% higher as it reported a near 10% increase in third-quarter sales to £223.3m. Paragon Bank advanced as it said new lending rose 24% in the first quarter to £469.8m, while Computacenter edged higher after announcing plans to return up to £100m to shareholders through a tender offer. Clothing retailer Superdry, formerly SuperGroup, rose as it said that chief financial officer Nick Wharton is planning to retire and will be succeeded by Ed Barker, the current director of group finance. Bookies William Hill and Ladbrokes recouped some of the losses from the previous session, when it was hit by reports that the government was planning a £2 maximum stake on betting machines. There were newspaper reports that the industry was weighing up the possibility of legal action against the government over the potential clampdown from their former maximum stake of £100. BROWN MARKED DOWN On the downside, N Brown, the clothes retailer for plus-size shoppers, took a 17% dive. Although it had a sturdy third quarter, with a strong surge in its Simply Be brand and a rebound in the USA, overall growth of 3.3% in the quarter was relatively subdued compared to previous months and was slightly short of the average of City analyst forecasts at 3.6%. The group lowered its guidance on profit margins from product sales, but said it still expected to hit overall profit margins due to better margins from its payment plan customers. "Sadly, this takes on the appearance of financial engineering rather than a genuine improvement in the quality of earnings," sniffed analysts at Peel Hunt. "Looking ahead, we see margin risk on both FS and product; more forecast risk ahead." Brewer Marston's fizzed lower after saying it took a hit from the snowy and icy weather in early December and between Christmas and New Year, although its pubs saw record sales on Christmas day. National Grid was on the back foot as it hit out at regulator Ofgem over its proposals for the new Hinkley Point power station, while IG Group lost out on its early gains after posting record half-year results and announcing the launched of a new German subsidiary. In broker note action, Croda was lifted by an upgrade to 'buy' at Berenberg, but WPP was hit by a downgrade to 'neutral' at Credit Suisse, while Rentokil was lower after a downgrade to 'add' at Peel Hunt. Homeserve and Serco were also trading lower after downgrades by Peel Hunt. UK PUBLIC DEFICIT FLATTERS TO DECEIVE Data out earlier showed UK public borrowing in December was the lowest since 2000 thanks largely to one-off factors and is expected to deteriorate in 2018. Public sector net borrowing excluding public sector bank, known as PSNB ex, fell to £2.6bn last month from £5.1bn a year earlier and almost half the consensus forecast for £5.0bn. PSNB ex has shrunk to £50bn for the tax year so far, which is £6.6bn lower than the prior year and the lowest borrowing since 2007 as the government continues with its austerity policies. Tax receipts rose 3.3% year-on-year in December, below the 4.4% average of the previous eight months, with the falling deficit more to do with lower government spending and was boosted in December by a £1.2bn credit from the European Union due to the underperformance of the UK economy. This mean central government expenditure dropped £0.4bn or 0.8% year-over-year. At the end of December the public debt stood at £1.8trn, equating to 85.4% of gross domestic product, up £62.3bn since the end of December 2016. Meanwhile, the latest survey from the Confederation of British Industry showed manufacturing growth slowed in January. The CBI's total orders balance fell to +14 from +17 in December, although this was ahead of expectations for a balance of +12. Looking ahead to the rest of the day, investors will be keeping an eye out for any headlines from the World Economic Forum in Davos. | 
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