19th May 2025 17:04
(Alliance News) - The FTSE 100 rallied into the close on Monday, ending at best levels for the day, as investors weighed UK-EU reset talks and Moody's US credit rating downgrade.
The FTSE 100 index rose 14.75 points, 0.2%, at 8,699.31. The blue-chip index had earlier traded as low as 8,613.47.
The FTSE 250 fell 11.17 points, 0.1%, at 20,961.09, and the AIM All-Share eased 1.17 points, 0.2%, at 733.56.
The Cboe UK 100 ended down 0.1% at 866.99, the Cboe UK 250 fell 0.2% at 18,296.66, and the Cboe Small Companies climbed 0.3% at 15,908.23.
In European equities on Monday, the CAC 40 in Paris ended little changed, while the DAX 40 in Frankfurt improved 0.7%.
In Europe, the focus was on 'reset' talks between the European Union and the UK amid a lower economic growth forecast for the eurozone.
The EU sharply cut its eurozone economic growth forecast for 2025 because of global trade tensions sparked by US President Donald Trump's sweeping tariffs.
The European Commission said the 20-country single currency area's economy should grow 0.9% in 2025 – down from a previous forecast of 1.3% – due to "a weakening global trade outlook and higher trade policy uncertainty".
The EU also lowered its prediction for eurozone growth in 2026 to 1.4%, down from 1.6% expected in November last year.
Meanwhile, Keir Starmer's claimed his post-Brexit "reset" with the EU will cut red tape for travellers and businesses, boosting the economy by GBP9 billion by 2040.
Under the deal struck with Brussels, more tourists will be able to use e-gates at airports in Europe, pet passports will be introduced for UK cats and dogs and businesses can sell burgers and sausages into the bloc again.
But the Prime Minister faced accusations of betraying Brexit over the extension of fishing rights for European vessels for a further 12 years and closer ties to EU rules.
The PM said it was "time to look forward", and "move on from the stale old debates and political fights to find common sense, practical solutions which get the best for the British people."
ING said the deal is a positive first step for the UK but it "won’t massively boost the economy, nor help avoid tax rises in the autumn. Further regulatory alignment might do that and would help boost sterling. But existing UK and EU red lines make that a daunting task."
In New York on Monday, the Dow Jones Industrial Average was down 0.2%, the S&P 500 was down 0.3% and the Nasdaq Composite was down 0.5%.
Moody's Ratings late Friday downgraded the US long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed the outlook to stable from negative.
The one-notch downgrade on the 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns, the credit rating agency said.
Moody's said successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.
The move pushed yields on US Treasuries higher. The yield on the US 10-year Treasury was quoted at 4.49%, widening from 4.44%. The yield on the US 30-year Treasury was quoted at 4.96%, narrowing from 4.89%.
Analysts at Brown Brothers Harriman said the rating downgrade has "reminded markets of the growing US risks and so dollar weakness is set to continue."
"Trade policy uncertainty, doubts about the rule of law, an escalating fiscal burden, and perceived interference with the Fed’s independence all threaten to make the US a less attractive place to invest," BBH analysts said.
The pound was quoted higher at USD1.3365 late on Monday in London, compared to USD1.3260 at the equities close on Friday. The euro firmed to USD1.1254 against USD1.1146. Against the yen, the dollar was trading down at JPY144.85 compared to JPY145.97.
Markets also weighed mixed data for April from China with industrial production outperforming expectations while retail sales growth slowed.
Data from the National Bureau of Statistics of China showed total retail sales rose 5.1% year-on-year, slowing from a 5.9% uptick in the previous month. The latest reading came in below the consensus forecast of a 5.5% increase, as cited by FXStreet.
Meanwhile, industrial production grew 6.1% year-on-year in April, easing from a 7.7% increase in March but above the 5.5% consensus forecast.
Dilin Wu, research strategist at Pepperstone, said the figures show a classic case of "two-speed growth" which is unlikely to fade anytime soon.
"As long as US-China tariff tensions ease and external demand remains solid, exports should continue to anchor China’s growth. But the recovery in domestic demand - particularly in property - will likely take longer and require targeted, structural policy support," Wu said.
On the FTSE 100, Diageo fell 1.1%, giving back earlier gains, after it reported growth in third-quarter sales. The owner of Guinness and Johnnie Walker said reported net sales in the third-quarter to March 31 rose 2.9% on-year to USD4.38 billion from USD4.25 billion. On an organic basis, it improved 5.9%.
"Performance in the quarter was supported by favourable phasing which we estimate contributed [around] 4% of Q3 group organic net sales growth, mainly from North America and to a lesser extent Latin America and Caribbean, and is expected to reverse in Q4," Diageo said.
It saw a positive price/mix in all regions with the exception of Asia Pacific, where it was hurt by "continued consumer downtrading".
Diageo flagged "appropriate and selective disposals over the coming years" as it introduced 'Accelerate'.
RBC Capital Markets noted while organic growth at 5.9% was "eye-catching", 4% of that came from phasing which is expected to reverse in the fourth quarter.
Brent oil was quoted at USD65.41 a barrel in London on Monday, up from USD65.16 late Friday.
Despite the rise, BP fell 1.9% as Jefferies downgraded the London-based oil major to 'neutral' from outperform.
"We see BP's strategy facing increasing execution risk: the company may soon have to face the hard choice between delivering on the leverage reduction target or suspending the buyback and/or, reducing its upstream growth ambitions," Jefferies said in a research note.
Further falls in the oil price could see BP become the first integrated oil company to suspend share buybacks, Jefferies added.
Gold was higher at USD3,233.73 an ounce against USD3,181.86 on Friday.
The price bump benefited Fresnillo which climbed 2.6%, while Endeavour Mining rose 1.0%.
Tuesday's global economic calendar has an Australian interest rate call overnight, Canadian inflation data and a eurozone consumer confidence report.
The domestic corporate calendar sees full-year results from telecommunications company Vodafone and property company LondonMetric Property plus half-year results from technical products and services provider Diploma.
By Jeremy Cutler, Alliance News reporter
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