London close: Stocks hit by pound strength as analysts spy possible Brexit deal

By the end of trading, the FTSE 100 was down 0.61% at 7,167.95 while sterling had climbed 0.6% against the US dollar to trade at 1.2862, having surged on Tuesday to its highest level against the greenback since May, and was up by 0.16% versus the euro at 1.1606.

In parallel, the FTSE 250 dipped 0.04% to finish at 20,187.96.

Nonetheless, analysts did appear to have grown more confident over the last few days regarding the possibility of avoiding a 'no deal' Brexit.

"[...] Despite the lack of clarity on exactly how Johnson plans to get a deal across the line, there is a growing confidence that Johnson wants a deal despite previous fears that a no-deal Brexit is his primary aim [...] it is evident that traders are more confident than ever that a no-deal Brexit is going to be avoided," said IG's Josh Mahony.

And earlier in the session, analysts at Barclays Research told clients: "A Brexit breakthrough seems increasingly likely and could boost sentiment towards domestic Europe, particularly Financials. While headline risks remain elevated on both fronts, we think it is prudent to cut some of our defensive hedges and add to UK domestics."

Contradictory reports on whether a deal between the UK and European Union was about to be agreed cascaded across traders' screens throughout the day, with one of those, which cited EU sources, saying that Northern Ireland's DUP had agreed to the latest proposals for assuring democratic control over the customs agreement.

That report was quickly shot down by DUP leader Arlene Foster herself.

Undaunted, shortly after the close of trading in London, Reuters reported, citing EU sources, that all of the main sticking points remaining had finally been agreed, pending approval by Westminster.

"The level playing field and customs are agreed. Consent by the Northern Irish assembly every four years," one EU official reportedly said.

However, there wasn't much to be cheery about on the US-China trade front, after Beijing threatened to retaliate after the US House of Representatives on Tuesday passed three bills supporting the rights of pro-democracy protesters in Hong Kong. China's foreign ministry condemned the bills, which still need to pass the Senate for approval.

Analysts at Rabobank said there appeared to be sufficient bipartisan support to ensure the bills were passed. Whatever countermeasures China may be planning, "it surely won’t help the longevity of the limited trade truce between the two nations", they said.

With Brexit and trade news hogging the headlines, the latest reading on UK inflation came and went pretty much unnoticed.

Figures from the Office for National Statistics showed the headline inflation rate was unchanged at 1.7% in September on an annual basis, below the Bank of England's 2% target and remaining at its lowest rate since December 2016. Economists had expected an uptick to 1.8%.

In equity markets, Hammerson was knocked lower by a downgrade to 'sector perform' at RBC Capital Markets.

Hiscox and Lancashire Holdings were both under pressure after Barclays said in a note on European reinsurance that profit warnings were a possibility from both companies.

Reckitt Benckiser was boosted by a re-initiation at 'buy' at Berenberg, while Go-Ahead was up after an upgrade to 'buy' at HSBC.

Barratt Developments ended the day lower after the housebuilder said the new financial year had started well, with good demand for new homes, but that it continues to expect to grow volumes towards the lower end of its 3% to 5% medium-term target.

Private healthcare services company Mediclinic rose as said first-half revenue was up around 6.5%.

Market Movers

FTSE 100 (UKX) 7,167.95 -0.61%
FTSE 250 (MCX) 20,187.96 -0.04%
techMARK (TASX) 3,820.75 -0.45%

FTSE 100 - Risers

United Utilities Group (UU.) 890.00p 2.84%
Severn Trent (SVT) 2,297.00p 1.95%
Royal Bank of Scotland Group (RBS) 229.70p 1.59%
DCC (DCC) 6,976.00p 1.40%
Relx plc (REL) 1,796.50p 1.30%
Reckitt Benckiser Group (RB.) 5,993.00p 0.89%
Unilever (ULVR) 4,619.50p 0.88%
Smith (DS) (SMDS) 351.70p 0.72%
Polymetal International (POLY) 1,154.00p 0.61%
TUI AG Reg Shs (DI) (TUI) 1,033.00p 0.54%

FTSE 100 - Fallers

Hiscox Limited (DI) (HSX) 1,518.00p -5.18%
NMC Health (NMC) 2,569.00p -4.14%
London Stock Exchange Group (LSE) 7,016.00p -2.75%
Informa (INF) 767.00p -2.74%
Auto Trader Group (AUTO) 535.40p -2.73%
Meggitt (MGGT) 597.20p -2.67%
Spirax-Sarco Engineering (SPX) 7,320.00p -2.66%
St James's Place (STJ) 998.40p -2.60%
Coca-Cola HBC AG (CDI) (CCH) 2,451.00p -2.47%
WPP (WPP) 929.20p -2.29%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 480.90p 7.54%
Coats Group (COA) 73.10p 4.21%
FDM Group (Holdings) (FDM) 714.00p 3.93%
Go-Ahead Group (GOG) 2,182.00p 3.90%
Marston's (MARS) 117.20p 3.72%
SIG (SHI) 113.00p 3.60%
Mediclinic International (MDC) 370.50p 3.49%
Dixons Carphone (DC.) 135.40p 3.36%
Domino's Pizza Group (DOM) 265.80p 3.26%
Micro Focus International (MCRO) 1,127.60p 2.83%

FTSE 250 - Fallers

BBA Aviation (BBA) 302.20p -5.15%
Ferrexpo (FXPO) 134.80p -4.60%
Hammerson (HMSO) 310.00p -3.73%
Kainos Group (KNOS) 478.00p -3.27%
Pets at Home Group (PETS) 222.00p -3.06%
PureTech Health (PRTC) 255.00p -3.05%
Restaurant Group (RTN) 144.40p -2.83%
Watches of Switzerland Group (WOSG) 278.00p -2.80%
Safestore Holdings (SAFE) 681.50p -2.64%
Moneysupermarket.com Group (MONY) 389.30p -2.54%