London Markets: U.K. stocks at 4-month high as government opens up for customs union after Brexit

London Markets: U.K. stocks at 4-month high as government opens up for customs union after Brexit

U.K. stocks rose Thursday, as traders largely ignored an advance in the pound and instead welcomed reports that Britain plans to stay in the customs union after Brexit.

Shares of betting companies managed to reverse losses that followed a government move to drastically limit bets on certain machines.

What are markets doing?

The FTSE 100 index UKX, +0.52%  was up 0.4% to 7,767.63, which would be enough to mark its highest close since Jan. 15, according to FactSet data. A win Thursday would be the index’s third in a row.

The pound GBPUSD, +0.0815%  rose to $1.3507 from $1.3490 late Wednesday in New York. A stronger sterling usually pull down the FTSE 100 as it eats into revenue made overseas by the benchmark’s many multinational companies.

On Wednesday, sterling traded around its lowest dollar level since late December, as the greenback rallied on speculation the Federal Reserve could start to hike interest rates more aggressively.

What is driving the market?

The pound advance followed a report that the U.K. government plans to tell Brussels it wants to stay in the European Union’s customs union beyond 2021 in an effort to avoid a hard border with Ireland. The report, in the Daily Telegraph, said Prime Minister Theresa May’s Brexit subcommittee has agreed on Britain staying in the union on a temporary basis, if the technology needed to keep the borders working after Brexit aren’t up and running.

Gambling companies were in the spotlight again after the U.K. government’s decision to cut the maximum bets that can be placed on fixed-odds betting terminals to 2 pounds ($2.70). People can currently bet up to £100 every 20 seconds on such machines.

Paddy Power Betfair PLC PPB, +1.76% said the new stake limit could cause a 33% to 43% fall in its total machine gaming revenue. William Hill PLC WMH, +4.25%  , whose shares trade off the FTSE 100, said the changes could cause a 35% to 45% fall in its total net gaming revenue.

But shares of Paddy Power and William Hill were up 1.9% and 3.9%, respectively, managing to climb out of the red as the session wore on. This week, William Hill and Paddy Power have charged up about 17% after a favorable U.S. Supreme Court ruling on Monday that could open sports betting around the nation.

What are strategists saying?

Marshall Gittler, chief strategist at ACLS Global, noted that while the Brexit developments may solve the problem of the Irish border it may not be acceptable to the hard-core Brexiteers in May’s cabinet.

“It seems to me to be ‘Brexit-lite,’ leaving the EU in name but not in reality, as remaining in the customs union also means adhering to various EU rules and regulations without having any say in their making. I’m not sure this is going to fly politically in Britain. It may settle one problem, but set up another one – a cabinet revolt,” Gittler said in a note.

Stock movers

On the FTSE 250 Index MCX, +0.83%  , Ocado Group PLC shares OCDO, +41.23% soared 41%. The company, which runs online delivery services and makes related software, said it has signed a partnership agreement with U.S. supermarket chain Kroger Co. KR, +3.05% under which Kroger will use Ocado’s technology in the U.S. for grocery and other food-distribution activities. 

Shares of Experian PLC EXPN, +5.47%  surged 5.5% after the consumer-credit reporting agency said it expects to launch a new share-buyback program of up to $400 million.

British Land Co. PLC BLND, +2.58%  added 2.6% after the commercial property company said pretax profit more than doubled in fiscal 2018.

National Grid PLC NG., +3.21%  picked up 3.3% after the utility company said its fiscal 2018 pretax profit rose 24%. It also said it expects its U.S. business to continue performing well and that the U.K. business remains on track to outperform.

On a downbeat note, shares of Royal Mail PLC RMG, -6.56%  slumped 6.1% after the company said fiscal 2018 pretax profit declined 37% due to a pension charge.

Oil producers Royal Dutch Shell RDSB, +1.66% RDS.B, +1.69%  and BP PLC BP., +0.99% BP, +1.02%  gained 1.4% and 0.7%, respectively, as Brent crude futures LCON8, +1.11%  jumped above $80 a barrel. The Trump administration’s recent decision to reinstate sanctions on Iran have continued to fuel a rally that’s pushed the oil market to 3½-year highs. The U.S. has said it is possible there will be secondary sanctions imposed on European companies who continue to deal with Iran.

“The oil market is tightening and we now see it as appropriate to factor in at least some of the windfall profitability that higher prices are generating,” said Lydia Rainforth, a Barclays oil and gas equity research analyst, in a note, adding its key overweight stocks are BP, Royal Dutch Shell and France’s Total SA FP, +1.66%  .