London Markets: FTSE 100 closes at 3-month high, fueled by BP’s stock bounce and sterling’s fall

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U.K. stocks on Tuesday ended higher for a fourth straight session and notched their highest finish since late January on the back of a softening currency and gains in shares of BP PLC and Just Eat PLC after upbeat quarterly reports.

J Sainsbury PLC shares extended a recent rally, amid news of a deal to merge with Asda, even as fresh data showed the supermarket chain lost market share over the past three months.

The pound dropped below $1.37 for the first time since mid-January, after disappointing U.K. manufacturing data were seen as making a Bank of England interest-rate hike in May less likely.

What is the market doing?

The U.K.’s FTSE 100 index UKX, +0.15%  added 0.2% to 7,520.36, with the multisession rise helping to mark the benchmark’s highest close since Jan. 31, according to FactSet data.

The pound GBPUSD, -1.0679%  fell to $1.3693, down from $1.3765 late Monday in New York.

What is driving the market?

Corporate news also drove sentiment, with a round of fresh earnings reports cheering investors. Oil giant BP PLC BP., +1.80% BP, +0.46%  reported its strongest quarterly profit since mid-2014, lifted by higher oil prices and rising production. Shares climbed 1.8%, rising to its highest close since May 2010.

The weaker pound also helped push the FTSE 100 toward gains, as the blue-chip index lists many multinational companies, which generate most of their sales in foreign currencies. Sterling moved sharply lower after the manufacturing purchasing managers index for April dropped to a 17-month low of 53.9, missing forecasts of a 55.0 reading.

Traders were watching the latest in Brexit developments. Prime Minister Theresa May late Monday suffered another blow, after the U.K.’s House of Lords voted in favor of an amendment to the Brexit bill that effectively kills the prospect of Britain leaving the European Union with no deal.

What are analysts saying?

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near term hike in interest rates by the Bank of England look increasingly remote,” said Rob Dobson, director at IHS Markit, in the PMI release.

“Business optimism has also dipped to a five-month low as concerns about Brexit, trade barriers and the overall economic climate remained widespread,” he added.

Which stocks are in focus?

Just Eat PLC JE., +4.08%  said first-quarter revenue jumped 49%, sending the shares 4.1% higher to the top of the FTSE 100.

Shares of British American Tobacco PLC BATS, -2.48%  declined by 2.5%. Piper Jaffray cut its rating on the tobacco company to neutral from overweight, noting a slowdown in cigarette sales trends in the U.S.

Royal Bank of Scotland Group PLC RBS, -0.15% RBS, -0.80%  said it plans to close 162 branches in England and Wales, for the loss of 792 jobs, as it prepares to reintegrate its Williams & Glyn business into its core bank. Shares fell by 0.2% after the news.

Supermarket sweep

Shares of J Sainsbury PLC SBRY, +1.78%  rose 1.8%, adding to a 15% rally from Monday that came after news the supermarket chain had agreed to merge with Walmart Inc.’s WMT, -2.34%  British unit, Asda Group Ltd.

Sainsbury’s gain on Tuesday came even as data from Kantar showed the chain’s U.K. grocery market share fell to 15.9% in the 12 weeks to April 22.

Among its rivals, Tesco PLC’s TSCO, -0.38% TSCDY, -0.93%  market share was unchanged at 27.6%, according to the Kantar report, while Asda’s share fell to 15.5%. Wm. Morrison Supermarkets PLC MRW, -1.36%  market share held steady at 10.5%, and Waitrose’s share fell to 5.1%.

Shares of Morrison’s dropped 1.4%, while Tesco’s stock slipped by 0.4%. But on the FTSE 250, shares of Ocado Group OCDO, +3.16%  were up 3.2% after Peel Hunt held its buy rating and raised its price target for the company, citing an opportunity for online-focused grocers in the Sainsbury’s fallout.