Pound hits one-week low after BoE trims inflation forecasts

telegraph-UK industrial output falls for third month in a row as manufacturing weakens
EU Commission raises UK GDP growth forecast for 2017 and 2018
Pound falls to one-week low on Bank of England rate decision
Bank of England leaves interest rates unchanged and trims 2017 growth forecast Pound hits one-week low
Carney: Real wages will fall this year
Investors shrug off Labour’s pledge to nationalise key industries
Market report: Investors shrug off Labour’s pledge to nationalise key industries
Financial markets were unperturbed by the Labour Party’s pledge to nationalise key industries, as it attempts to win over voters before next month’s election. According to a leaked copy of the party’s draft manifesto, Labour, under its leader Jeremy Corbyn, plans to national rail and mail services and take some of the energy sector into public hands. In the 43-page document, Labour promised to renationlise rail services by taking over franchises at the end of their existing terms, renationalise Royal Mail and establish publicly-owned bus companies. Gerald Khoo, of Liberum, said: “This would have significantly adverse valuation implications for the relevant companies, but clearly this must be weighed against the relatively low probability of Labour forming the next government.”
The response from potentially affected companies was benign, as investors shrugged off the possibility of a Labour government. Shares in Royal Mail rose 2.6p to 423p, FirstGroup climbed 1.3p to 142.2p, while, Go-Ahead dropped 70p to £18.50, Stagecoach dipped 2p to 214.4p, and National Express slipped 0.9p to 367.4p. Energy supplier Centrica fell 11p to 192.2p, SSE shed 15p to £14.49 and National Grid ended the day 7p lower at £10.33. Centrica’s fall did not reflect Labour’s leaked manifesto. Instead, it was trading ex-dividend and suffered a double rating downgrade. The unsettling reality of UK supply market changes prompted JP Morgan to lower its rating by two notches from “overweight” to “underweight”. The US investment bank said its sees “significant downside” emerging through price regulation and evidence of a price war emerging, as Engie enters the residential supply market. Meanwhile, Berenberg downgraded National Grid to “hold” as it believes the investment case “has now played out”.
Other laggards included pharma stocks Hikma and Vectura, which spent a second consecutive trading session in the doldrums. Speculation US regulators would not approve its generic copy of GlaxoSmithKline’s lung drug Advair prompted shares to slide on Wednesday. Both stocks extended their losses as Hikma confirmed Advair faced an approval delay due to “major” issues with its application. Hikma plunged 161p to £17.95, while Vectura plummeted 13p to 131.9p.
BTwas another big faller, down 14.1p to 297.9p, after it announced plans to slash 4,000 jobs and replace the boss of its global services business following the Italian accounting scandal, which wiped £8bn off the company’s value, while paper and packaging group Mondi eased back 34p to £20 on the back of a fall in first quarter operating profit. Adding to pressure, a number of stocks were trading without entitlement to their latest dividend. Admiral fell 68p to £20.38, BP lost 4.6p to 456p, Sainsbury’s drifted 6.6p lower to 265.1p and Sage dropped 3.5p to 687.5p. Nevertheless, the FTSE 100 managed to crawl into positive territory by close of play. The blue chip index ended the day 1.39 points, or 0.02pc, higher at 7,386.63, bolstered by a rally in mining stocks.
Gold miners Fresnillo and Randgold Resources climbed 72p and 250p, respectively, while copper miner Antofagasta jumped 17p to 777.5p and Anglo American gained 10.5p to £10.52.
Finally, Watchstone, the insurance claims manager formerly known as Quindell, has confirmed that it is facing a legal claim of around £600m from Slater & Gordon, the Australian law firm that bought its professional services business two years ago, on the basis of fraudulent misrepresentation. In its wake, Peel Hunt put the stock’s rating “under review” due to the level of uncertainty about the outcome. Shares fell 6.7pc to 140p. On that note, it’s time to close. Thanks for following our markets coverage this week. 4:42pm
European shares on disappointing earnings
European shares ended the day in the red on the back of disappointing earnings. The FTSE 100 was the only exception, nudging its way into positive territory. By close of play: FTSE 100: +0.02pc
DAX: -0.51pc
CAC 40: -0.41pc
IBEX: -1.68pc Michael Hewson, of CMC Markets, said: “Stocks have struggled for direction today with a slightly weaker bias across the board as a lack of positive drivers has weighed on sentiment. It would appear that while political risk has subsidised investors remain far from convinced that further upside can be sustained without further evidence of a positive pickup in the economic numbers.” 4:04pm
Ten companies are responsible for this year’s stock market rally on Wall Street
According to Goldman Sachs, just ten companies are responsible for this year’s stock market really on the S&P 500, including tech giants Apple and Amazon. Half of this year’s stock rally = 10 companies. (via @GoldmanSachs @NickatFP)pic.twitter.com/zZB0lLSCdG — Carl Quintanilla (@carlquintanilla) May 11, 2017
Supergroup sales jump but shares slip on margin caution
Back in London, shares in SuperGroup tumbled 4.8pc today after its gross margins across its sales channels were broadly flag in the second half of the year. Our retail editor Ashley Armstrong reports: Shares in Supergroup, the fashion retailer behind the Superdry brand, have tumbled despite recording a jump in sales on the back of the weaker pound. Sales rose by 27.2pc to £750.6m for the year to April 29. The recent fall in the value of sterling accounted for around a third of its growth across the retailer, which has shops in 62 different countries. Like-for-like sales across the group rose by 12.7pc during the year, helped by its booming internet business where sales grew by 35pc across the year.
However, Supergroup’s shares plunged by as much as 7pc as analysts were disappointed by the lack of a profit upgrade and sounded a note of caution about the retailer’s drop in gross margins from 140 basis points to 120 basis points. Analysts at Liberum warned that Supergroup, which recently launched an upmarket collaboration with Luther star Idris Elba to target more mature customers, “could be up against challenging comparators if these foreign exchange dynamics unwind”. Read the full story here 3:06pm
RBS chairman: UK lender expects to take a further significant one-offs in 2017
In his introductory remarks at the RBS AGM, chairman Howard Davies said the bank had made “considerable progress” over the last year in putting “issues” behind them and continuing to build a profitable core bank. However, he noted the British lender expects to take a further significant one-offs in 2017 – particularly related to conduct and litigation charges and restructuring – leading to a bottom line loss at the end of the year, before targeting a return to profitability in 2018. Davies added: “Reporting a bottom line profit for 2018 would be a huge milestone for the bank, after what will, by then, have been ten extremely tough years of losses.” Chairman Howard Davies on RBS’s progress at the 2017 AGM. Read full speech here: https://t.co/k5CIgJsUlM pic.twitter.com/kViNVBOOpS — RBS (@RBS) May 11, 2017
The RBS chairman also said reporting “large losses” is always “difficult”.  He said: “Shareholders suffer most, but the bank’s management and employees also feel the pain. It is important to bear in mind that this loss reflected £10 billion of one-off provisions as we sought to conclude as many of our legacy issues as possible, while continuing to restructure the bank in line with our strategy.” 2:51pm
RBS hits back at investor advisory firm that told shareholders to reject new executive pay policy
Our banking correspondent Ben Martin has the latest from the RBS AGM in Edinburgh: Royal Bank of Scotland has hit back at an influential investor advisory firm that told shareholders to reject its new executive pay policy over concerns about its share bonus plans. Sir Sandy Crombie, the taxpayer-owned lender’s senior independent director, said the group “strongly challenged” criticisms made by Institutional Shareholder Services (ISS) ahead of the bank’s annual general meeting today, and also disagreed with objections raised by Pirc, another advisory group. ISS is the world’s biggest shareholder advisory service and had recommended last month that investors vote against RBS’ new three-year remuneration policy in a binding poll at today’s AGM.
The group said it was worried about proposed changes to the so-called long term incentive plans (LTIPs) for RBS boss Ross McEwen and finance chief Ewen Stevenson. ISS objected to plans to scrap pro-rating of the LTIPS, a change that could mean an executive who quits before the end of the scheme might still get the full award, and said it was also concerned that while share bonuses have been cut they will be easier to award. It said cuts to the maximum value of the share bonuses were not enough to offset its worries. However, Sir Sandy told investors at the AGM that the board “strongly challenged the view from ISS that the level of discount was insufficient under the new construct”. The bank has reduced the maximum value of the LTIP plan from 400pc of both executives’ salaries to 175pc of Mr McEwan’s £1m base pay and 200pc of Mr Stevenson’s £800,000 salary. Sir Sandy added: “We subsequently re-engaged with a number of our major shareholders, and I am pleased to say that the vast majority indicated their continued support for our proposals.” Given the bank is 71pc-controlled by the taxpayer, it is thought unlikely the board would have suggested a policy that was likely to be rejected by its majority owner. The government stake is managed by UK Financial Investments. However, the ISS report could spark an embarrassing protest vote by minority shareholders. The AGM voting results will be released later. 2:44pm
US stocks open lower on disappointing earnings
Over on Wall Street, US stocks have opened lower amid disappointing earnings, particularly from retailer Macy’s. At the opening bell: Dow Jones: -0.2pc
S&P 500: -0.25pc
Nasdaq: -0.31pc
UK wage growth in real terms since the crisis
In light of Mark Carney saying real wages will fall this year, here’s a useful chart from Jamie McGeever, of Reuters:  UK wage growth in real terms since the crisis – mostly negative, and heading that way again as inflation outstrips weak wage rises. pic.twitter.com/6ANoWDZJjS — Jamie McGeever (@ReutersJamie) May 11, 2017
What did we learn from Mark Carney’s press conference?
Here’s a useful video from Bloomberg highlighting what we learnt from Mark Carney’s press conference: What did we learn from Mark Carney’s news conference? @nejracehic recaps the main points https://t.co/jMML3w6Mkg pic.twitter.com/loZaoAE2kx — Bloomberg (@business) May 11, 2017
Bank of England’s Super Thursday: How the experts reacted
Here’s a look at how the experts reacted to the Bank’s ‘Super Thursday’: Dean Turner, Economist at UBS Wealth Management Mr Turner thinks ‘Super Thursday’ has become ‘Average Thursday’. He adds: “Given the proximity of the General Election, no fireworks were expected. There were no surprises on the growth and inflation adjustments, but the Bank’s continued confidence in a “smooth” transition to a new deal with the EU stands out given recent news flow. “The Bank expects the squeeze on consumers will be offset in part with a better performance by exporters and investment. In our view, the this seems a little optimistic; we expect growth will slow more meaningfully as firms reassess their investment plans while Brexit talks are taking place.” Mr Turner also thinks the immediate drop in the pound looks “justified” as it suggests the MPC will become more hawkish in the short-term. Lucy O’Carroll, Chief Economist, Aberdeen Asset Management “The Bank’s overall view, that growth is set to slow as real incomes are squeezed by higher inflation, is still the most convincing story in town – as today’s disappointing manufacturing and trade data show,” she said. Ms O’Carroll reckons financial markets will probably take all of this in their stride, given the lack of surprises. However, she noted: “The only risk is that investors fret overly about the inflation forecast or focus too heavily on comments about a possible need for tighter policy than markets are currently assuming.” Ben Brettell, Senior Economist, Hargreaves Lansdown   Mr Brettell reckons that it might not take much positive economic data to persuade further MPC members to join Forbes and vote to hike rates. He added: “Athough it should be noted that she is due to leave the MPC at the end of June.” 1:32pm
Brexit process does not tie hands of MPC, says Carney
Commenting on the Brexit process, the Bank of England governor Mark Carney says it does not tie the hands of the MPC. He says: “The Article 50 process, the negotiation process, that process and that end state of course has an influence on the economy and inflation. And we have to take that into account, and set monetary policy appropriately… But it does not tie the hands of the MPC. The MPC will take the necessary monetary decisions at the appropriate time.” Taking a final question about the current low levels of volatility, he remarks that volatility is quite low in financial markets. However he points out that volatility in sterling is closer to its historic averages. With that, the press conference ends. 1:24pm
Pound falls further as Mark Carney speaks
The pound has extended its losses this afternoon as Mark Carney warned real wages will fall this year. Sterling #gbpusd trading heavily in the wake of the Bank of England QIR, down around 0.63% at $1.286, just off session lows. — Sigma Squawk (@SigmaSquawk) May 11, 2017
The local currency, which was trading at $1.2926 before the Bank announced its decision on rates, is now changing hands at $1.2861 against the US dollar – down 0.6pc on the day.

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