FTSE 100 skids and pound hovers above $1.22 as UK public finances worsen in September

Old City bid rumours are just like fashion trends, they re-emerge. Yesterday, fresh speculation about a possible Burberry-Coach tie-up pushed shares in the British trench coat maker to a 14-month high.

Online reports purported US firm Coach was working with investment bank Evercore on a potential merger with Burberry to create a $20bn luxury fashion giant. Although Burberry declined to comment on the speculation, reports were talked down in afternoon trade. Citing sources familiar with the matter, Reuters said “no negotiations” are underway. 

Luca Solca, of Exane BNP Paribas, described the potential tie-up as “a merger of problems”. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability.” Contrary to Coach, most of Burberry’s efforts over the past 20 years have gone in the direction of “elevating the brand”, rather than “squarely into accessible luxury”, Mr Solca added.

It’s not the first time takeover talk has lifted shares in Burberry. Earlier this year, reports suggested the FTSE 100 group asked its advisors at Robey Warshaw to help prepare a defense for a possible. At the time, French luxury house LVMH and Coach were named as possible suitors. Shares leapt by as much as 8.1pc in intraday trading, before closing up 45pat £14.95.

Despite an afternoon rally in Burberry’s shares, the FTSE 100 closed in the red, down 6.43 points, or 0.09pc, near a one-week high of 7,020.47.

British American Tobaccobecame the biggest laggard on the blue chip index after it announced plans to buy the stake in Reynolds American that it does not already own in a $47bn cash and stock deal. Although analysts at Credit Suisse described the deal as “inevitable”, they said the timing was “a surprise” given current levels of indebtedness. Shares swung between gains and losses, before closing down 137p at £46.66. Its peer Imperial Brands jumped 103.5p to £39.66 following the announcement.

Broadcaster ITV also lost its footing, finishing 2.2p lower at 171p, despite Liberum suggesting consensus advertising forecasts for 2017 look “too pessimistic”.

Meanwhile, slower growth in room rates in the third quarter caused shares in Holiday Inn ower InterContinental Hotels Group to slide 65p to £31.60.

On the other side, Royal Bank of Scotland edged up 3.7p to 190p after Deutsche Bank and RBC both hiked its target price to 171p and 165p, respectively.

Elsewhere, a rating upgrade catapulted publishing and events company Informa towards the top of the FTSE, up 15p to 683p. Berenberg hiked its rating to “buy” and revised its target price upwards to 800p citing an improvement in the company’s exhibitions business portfolio. Last month, Informa agreed to buy US group Penton to £1.18bn.

Mid-cap gold miner Acacia leapt 59.8p to 529p after it said it sees its full-year gold production coming in 5pc ahead of its previous forecast of 750,000 to 780,000 ounces.

Finally, independent used car retailer Motorpoint regained some momentum following this week’s profit warning, up 1.5p to 141p, after directors upped their stake in the business. Chief executive Mark Carpenter snapped up 520,000 shares and non executive chairman Mark Morris bought 260,000 shares at 138p a piece.

On that note, it's time to close up for this week. Thanks for following our markets coverage - we'll be back on Monday. 

The EU’s free trade deal with Canada appears to be dead in the water as Ottawa’s trade minister walked out talks, declaring the EU “incapable” of managing international agreements.

Negotiators have spent seven years hammering out the Comprehensive Economic and Trade Afreement (CETA) and wanted the EU and Canada to sign the deal this month.

But Wallonia’s leader Paul Magnette refused to give his approval, forcing Belgium to withhold its support and so leaving the EU short of the unanimous agreement required to sign the treaty.

Canadian trade minister Chrystia Freeland left the talks as last-ditch negotiations to change Mr Magnette’s mind appeared to fail.

"Canada has worked and I personally have worked very hard, but it is now evident to me, evident to Canada, that the European Union is incapable now of having an international agreement, even with a country with such European values as Canada, even with a country as nice and patient as Canada,” Ms Freeland said.

“We spent today here working very hard with the Walloons and the Commission to respond to the concerns expressed by the Walloons. Canada is disappointed and I personally am disappointed, but I think it is impossible. We are returning home.”

The failure of the agreement will have serious ramifications for the rest of the EU’s global trade plans.

Report by Tim Wallace (Read more here)

After a week driven by political events, European financial markets suffered a rather dull end to the week. 

By close of trading: 

• FTSE 100: -0.09pc
• DAX: Flat
• CAC 40: -0.2pc
• IBEX: +0.31pc

Joshua Mahony, of IG, reflects on the week that was: 

"An interesting week is heading for a somewhat drab finish today, with both European and US indices heading for moderate losses on the day. Yesterdays ECB meeting was no doubt the key event of the week and the continued deterioration in the euro hints that despite saying that it hadnt been discussed, an extension to QE is highly likely in December. It seems December is shaping up to be the reference point for markets, with both the US and ECB expected to make a move. However, with ECB extension and the possibility of a US hike, the annual santa rally could be less certain this time around.

"Today marked the end of a two day summit, which seemed to be as much about ignoring the UK's wishes as anything, with Theresa May largely on the sidelines once again. The PM calls for increasingly closer trade ties in a post-Brexit world than pre-Brexit, yet going by recent behaviour at the EU, we may not even be on speaking terms. The volatility evident in sterling crosses over recent weeks has been largely driven by the market jitters which seem to take each piece of running commentary as a make or break moment. It is certain that the negotiations wil be tough, but for the most part, recent comments are more about gaining a strong negotiating hand ahead of negotiations than truly  reflecting what the final trade outcome will look like."

Time Out Group has acquired Yplan. Kate Palmer has the latest: 

Time Out has bought Yplan, the app that lets users book last-minute tickets for sold-out events, in a £1.6m deal.

The valuation falls dramatically short of the $37m (£31m) Yplan has received from venture capital backers since it was founded in 2012.

Yplan, which was deemed a “seriously good app” by Stephen Fry when it launched, offers its users tickets for events each day across London, Edinburgh, New York, San Francisco and Las Vegas.

Time Out, which recently raised £90m by floating on London’s junior market Aim, will pay £1.6m for Yplan’s shares but could stump up an extra £800,000 in a year’s time, “subject to no warranty claims being made under the sale and purchase agreement”.

Yplan’s founders Rytis Vitkauskas and Viktoras Jucikas said their firm was an “excellent fit” for Time Out, despite previously touting ambitions to become a billion-dollar business or so-called “unicorn” in the British technology scene.

Read more here

The European competition authority has been given more time to scrutinise the London Stock Exchange’s planned merger with Deutsche Boerse.

The £21bn deal, which would create Europe’s largest exchange operator, is going through a full investigation over worries that it could stifle competition in clearing and trading of derivatives, short-term bank debt and other parts of the financial markets.

The Commission now has until March 6 to weigh up whether the LSE’s offer to sell off its LCH clearing operations in Paris is enough to assuage the rest of the market’s concerns. The deadline was originally set for mid-February, and could be extended again if needed.

The clearing business, which acts as a middle man between buyers and sellers, has also been dragged into the spotlight by politicians in Europe calling for euro-based clearing to return to the currency area following the UK’s vote to leave the EU.

Report from Marion Dakers (Read more here)

Negative read-across from General Electric's results weighed on industrial stocks dragging US stock markets into the red as trading got under way on Wall Street. 

At the opening bell: 

• Dow Jones: -0.58pc
• S&P 500: -0.43pc
• Nasdaq: -0.13pc

Contrary to earlier reports from Betaville and the FT's Alphaville, Reuters is reporting that Burberry and Coach are not in active merger talks, citing sources familiar with the matter. 

More details from Reuters: 

"This is completely speculative. There are no negotiations underway, Burberry is not talking to Coach," one of the sources said. Another source with first hand of the matter said such plan could not be on the cards since the two companies pursued very different strategies.

Burberry declined to comment.

It's worth noting that shares have pared earlier gains and are now just up 3.4pc at £15, having risen by almost 7pc when the report of a possible merger between the pair broke. 

The pound came under pressure again as the EU summit continued today, sliding below the $1.22 mark. 

British Prime Minister Theresa May this afternoon said that Brexit negotiations would take time and that she was ready for some "difficult moments".

At a news conference after her first European Council as prime minister, May reiterated her hope that Britain and the European Union would have a "mature and cooperative" relationship after Britain exits.

"Obviously we've got negotiations ahead of ourselves. Those negotiations will take time, as I say, there will be some difficult moments, we are going to need some give and take," she said.

The pound is currently trading down 0.7pc on the day at $1.2286. 

 Head over to our live politics blog:  EU leaders: Theresa May 'creating anger' by blocking long-term bloc projects - 'it's not really normal a member who wants to leave a club decides its future'   ​

Shares in Coach jumped 3.8pc to $37.29 in pre-market trading on the back of reports that it is working with Evercore on a possible merger with Burberry. 

Shares in Burberry popped to the top of the FTSE 100, rising 6.6pc to £15.46, on reports of merger interest from US peer Coach. 

A financial blog, Betaville, said Coach was working with investment bank Evercore on a potential merger with Burberry, citing sources. 

According to Reuters, Burberry would not comment on market rumours and speculation. 

Lidl's rampant growth in the UK is stalling as sales have slumped by around 5pc at the discounters' shops that have been open for more than a year, according to a fresh analysis of industry figures.

The slowing sales raise fresh speculation about the reasons for the abrupt departure Lidl's former chief executive, Ronny Gottschlich. Last month Mr Gottschlich unexpectedly resigned after 16 years with the German retail chain and was replaced by the head of the supermarket's Austrian business with no explanation given. 

Earlier this week, data by Kantar Worldpanel revealed that Lidl and its German discounter peer Aldi were continuing to grow market share by adding around 60 to 70 stores a year.

However, analysts and retail sources have said that Lidl's market share of 4.6pc, compared to 4.3pc the year before, and a total sales rise of 8.4pc, mask the true picture of like-for-like sales - an industry benchmark that measures sales at stores that have been open for more than a year.

Report from Ashley Armstrong (Read more here)

The dollar surged to its highest since March, as the euro came under pressure after the European Central Bank shot down talk of tapering its easy money stance.

The euro hit its lowest against the dollar since March after the ECB left its ultra-loose policy unchanged on Thursday but kept the door open to more stimulus in December.

ECB President Mario Draghi also doused recent market speculation that the central bank had discussed winding down its 1.7 trillion euro asset-buying programme. 

Later today we will hear from two Fed officials - John Williams and Daniel Tarullo - which could impact the dollar. 

Craig Erlam, of OANDA, said: "As it is, a December hike is 74pc priced in by the markets, based on the implied probability from Fed Funds futures.

"Daniel Tarullo has been one of the more dovish voices on the FOMC this year, last month claiming that he wants to see more evidence of inflation moving towards 2pc, although he did concede that a rate hike this year is a possibility. Should he move more in line with the more hawkish policy makers in the camp today, as a voting member of the FOMC that didn’t dissent at the last meeting, it would send a strong message that a December hike is very much on track. We’ll also hear from John Williams who isn’t an FOMC voter until 2018."

Some positive corporate results and BAT's proposed merger with Reynolds American lifted European bourses this morning. 

Just after midday, here's the state of play in Europe: 

• FTSE 100: +0.42pc
• DAX: +0.11pc
• CAC 40: -0.09pc
• IBEX: +0.13pc

Connor Campbell, of SpreadEx, said: "There hasn’t been much cause for drama this morning, leaving the European markets to pootle along at a rather sluggish pace.

"A higher than expected public sector net borrowing figure from the UK has little effect on the FTSE or the pound this Friday, each instrument focused on slightly more macro concerns. The former maintained a 30 point increase, lifting close to 7050 in the process, while the latter lost 0.2pc against the Clinton-boosted dollar but gained 0.1pc against the ECB QE-fearing euro. Since the inflation reading on Tuesday both the FTSE and the pound have lacked energy, instead making the most incremental of gains; it’s a stark contrast to the wild movements seen in the last couple of weeks, a trend that admittedly could return in the run up to next Friday’s Q3 GDP figure."

Canadian plane and train maker Bombardier will axe about 7,500 jobs globally over the next two years as it deepens turnaround efforts at its rail division. 

 The Montreal-based group's chief executive Alain Bellemare told Reuters: 

""We understand these are difficult decisions ... but in the end what we are going to be left with is a leaner, stronger organization." 

He also said the cuts were part of a broad turnaround plan which is aimed at improving operations amid cost and productivity concerns. The company expects recurring savings of $300m by the end of 2018.

Here's our full report by Julia Bradshaw on this morning's UK public borrowing figures: 

The UK’s public-sector finances deteriorated significantly in September, largely thanks to a step-up in Government spending and a fall in income from corporation tax.

The state had to borrow £10.6bn in September because the amount of money it generated through taxes and other means was less than it needed. This was an increase of £1.3bn, or 14.5pc, compared with September 2015.

Of this £10.6bn sum, £7.4bn related to the cost of the “day-to-day” activities of the public sector, while £3.2bn related to spending on infrastructure.

“This is very disappointing news for Chancellor Philip Hammond ahead of the Autumn Statement,” said Dr Howard Archer, chief european & UK economist at IHS Markit.

 Read more here

Shares in Acacia Mining leapt 12pc to the top of the mid-cap index after it said it sees full-year gold production coming in ahead of its previous forecasts. Jon Yeomans reports: 

FTSE 250 gold miner Acacia has pleased investors with another glittering performance in its third quarter.

Shares in the Tanzania-based company jumped more than 9pc to £5.14 in early trade after it reported a 25pc leap in gold production year-on-year, thanks to a strong quarter at its North Mara mine.

Acacia turned out 204,000 ounces in the three months to September 30, while revenue jumped by a third to $284m (£202m). Pre-tax profits for the quarter swung from a $14.6m loss in the same period last year to an $80.8m gain.

“Our strong third quarter operational and financial results represent another significant step forward for Acacia, particularly considering some of the headwinds experienced during the quarter,” said Brad Gordon, chief executive, referring to stoppages at its Bulyanhulu mine.

Read more here

M&G Investments, a unit of insurer Prudential, will lift the suspension of its M&G Property Portfolio and feeder funds from midday on November 4, the firm said in a statement on Friday.

M&G was one of seven fund managers to put a temporary freeze on trading in UK commercial property funds, as retail investors fled in the aftermath of Britain's vote to leave the European Union.

Most of the funds have since reopened.

M&G said 58 properties have been sold, exchanged or put under offer for a total 718 million pounds ($877.83m).

M&G froze the funds on July 5.

It also said on Friday it removed a fair value adjustment applied on July 1. Many funds, including those that remained open, applied fair value discounts following the Brexit vote.

Report from Reuters

 John Hawksworth, chief economist at PwC, says this morning's public borrowing figures were "a bit of a cold shower" for the Chancellor after the recent run of generally "favourable" post-referendum economic data. 

With public borrowing £1.3bn higher in September compared to the previous year, and the estimated deficit revised up by £1.1bn, Mr Hawksworth said it is looking "increasingly difficult" for Mr Hammond to meet the OBR forecast from March - that public borrowing in 2016/17 will be £55.5bn.

"A more likely outcome based on the available data is that the budget deficit this year will come in at around £65-70 billion," he said.

"We would not, however, expect the Chancellor to take any immediate action in the Autumn Statement to correct this budget deficit overshoot, as this could be counterproductive and further weaken the economy. Instead we would expect some increase in planned public sector investment over the next few years, allied to a commitment to eliminate the current budget deficit (excluding net investment) before 2020 and to keep the ratio of public sector debt to GDP on a gradual downward path in the medium term."

Shares in Intercontinental Hotels fell towards the bottom of the blue chip index this morning, down 1.5pc to 170.2p, after third quarter room revenue slowed. Kate Palmer reports: 

Intercontinental Hotels, the FTSE 100 hotels giant behind Holiday Inn, says terror attacks contributed to a drop in sales growth between July and September while revealing that Brexit’s impact on sterling could also weigh on profits.

IHG's revenues-per-available-room, a measure of business performance used in the hotel industry, increased by just 1.3pc in the three months to September 30. The group has hotels in nearly 100 countries including Britain, the US and China.

By contrast, IHG reported revenues-per-room growth of 2.5pc between April and June, a period mired by a string of terrorist attacks and failed military coup in Turkey.

Richard Solomons, InterContinental’s boss, insisted that “despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year.”

Continue reading here

Howard Archer, of IHS, has said the last month's bigger than expected deficit is "very disappointing news" for Chancellor Philip Hammond. 

"While the economy has shown overall resilience following June’s Brexit vote, there clearly has been some slowdown in activity which is impacting on tax receipts. Indeed, corporation tax fell year-on-year in September.

At £45.5bn during the first six months of the fiscal year (April-September), the budget shortfall is already within £10bn of the overall target of £55.5bn.

"Halfway through fiscal year 2016/17 and the government is appreciably off target to meet the March budget target, and the suspicion has to be that there will be further slippage in the second half of the fiscal year as the economy likely slows and higher gilt yields lift interest payments. Also higher inflation will likely lift  government costs."

Mr Archer now believes the Chancellor will look to provide "meaningful support" to the economy in November's Autumn Statement "as he still sees a difficult outlook for the UK economy despite its current resilience".

However, he notes that the scope for fiscal stimulus is "limited by the still sizeable budget deficit" and the Prime Minister and Chancellor have both stressed the need for fiscal responsibility.

The president of the European Council has said he still wants Britain to remain part of the EU.  Our political correspondent Laura Hughes reports: 

Donald Tusk said he would be the "happiest one" if the UK reversed the decision to quit and stuck with the bloc for years to come.

His admission came after Mrs May insisted there would be no second referendum.

She told her counterparts directly that Britain would be leaving after suggestions in Europe that the referendum result could be revisited.

But at the end of the summit dinner last night, Mr Tusk told reporters: "It's not our choice and if you ask me I would prefer 28 members not only for the next month, but also for the next years and decades.

"After the decision in the UK we have to respect the decision of the referendum. If it is reversible or not, this is in the British hands.

"I would be the happiest one if it reversible but we now we have to start our formal works."

Follow our live politics blog: Theresa May to hold talks with Jean-Claude Juncker after series of threats at her first European Council meeting

After data from the ONS showed Britain ran a budget shortfall - excluding state-owned banks - of £10.6bn last month, 14.5pc higher than the deficit in the same month last year, Samuel Tombs, of Pantheon Macroeconomics, said progress in reducing the budget deficit has "virtually halted". 

"The new Chancellor has signalled that he will pare back the fiscal tightening envisaged by his predecessor in the Autumn Statement on November 23. But with the budget deficit set to equal about 3.5pc of GDP this year and likely to rise next year as the economy slows, and the sharp rise in gilt yields underlining that investors’ confidence is fraying, we expect the Chancellor to be cautious.

"In addition, Mr. Hammond likely will want to preserve scope to loosen policy when the U.K. actually leaves the E.U. and for the run-up to the next election. As a result, we think that the Chancellor will scrap the 0.8pc of GDP fiscal tightening planned for 2017, but will not set fiscal policy to boost growth and will ensure that the fiscal consolidation resumes thereafter."

Howard Archer, of IHS, highlights that the bigger-than-expected deficit of  £10.6bn last month puts the government "even further off course" to hit its 2016/17 targets in its March budget. 

 Meanwhile, economist Rupert Seggins, says it looks likely that public sector borrowing will overshoot the OBR forecast "again this year". 

After UK public finances showed a bigger-than-expected deficit in September, here's a look at how markets reacted: 

• FTSE 100 turns negative
• UK 10-year gilt yield falls to one-week low at 1.052pc
• Pound extends losses, down 0.4pc on the day at $1.2227

Britain's public finances showed a much bigger-than-expected deficit in September, a setback for finance minister Philip Hammond as he prepares to deliver the country's first budget plans since the Brexit vote.

Britain ran a budget shortfall - excluding state-owned banks - of £10.6bn last month, 14.5pc higher than the deficit in the same month last year, the Office for National Statistics said on Friday.

The deficit was above all forecasts in a Reuters poll of economists, which produced a median forecast of an £8.5bn shortfall, and could limit Hammond's ability to cushion the blow of the vote in June to leave the European Union through higher spending or tax cuts.

Britain's budget deficit is among the highest for any developed nation.

The weak September figures took the deficit in the first six months of the financial year to 45.5 billion pounds, down nearly 5pc from the same period in the previous year but already close to the £55.5bn forecast for the 2016/17 tax year as a whole by Britain's budget watchdog in March.

The ONS said on Friday that receipts from corporation tax and property transactions both fell in September compared with the same month of 2015 and growth in value-added tax receipts was slower than earlier in the year.

It was the first fall in corporation tax revenues for the month of September since 2009, the ONS said, adding it was unable to provide a reason for the fall.

The growth in VAT receipts was the slowest for the month of September since 2012.

Hammond says he will bring down the budget deficit more slowly than his predecessor George Osborne had planned, to help the economy cope with the hit from the Brexit vote.

But the slow improvement of the public finances in the year to date, combined with an expected slowdown of the economy next year which will hurt tax revenues, represents a constraint on Hammond as he prepares his Nov. 23 Autumn Statement.

He has said any extra spending on infrastructure projects is likely to be modest, disappointing some economists who say he could be bolder with government borrowing costs so low.

Britain's budget deficit stood at 4.0pc of economic output in the last financial year, down from over 10pcin 2010. 

Report from Reuters 

1. Public sector net borrowing (excluding public sector banks) decreased by £2.3bn to £45.5bn in the current financial year-to-date (April to September 2016), compared with the same period in 2015.
2. Public sector net borrowing (excluding public sector banks) increased by £1.3bn  to £10.6 bn in September 2016, compared with September 2015.
3. Public sector net debt (excluding public sector banks) at the end of September 2016 was £1,627.2bn, equivalent to 83.3pc of gross domestic product (GDP); an increase of £39.5bn compared with September 2015.
4. This month debt as a percentage of GDP fell by 1.0 percentage point compared with September 2015. This is the fourth successive month of debt falling on the year as a percentage of GDP and indicates that GDP is currently increasing (year-on-year) faster than net debt excluding public sector banks.
5. Central government net cash requirement decreased by £9.5bn to £36.6bn in the current financial year-to-date (April to September 2016), compared with the same period in 2015.
6. Due to the volatility of the monthly data, the cumulative financial year-to-date borrowing figures provide a better indication of the progress of the public finances than the individual months.

*It's worth noting that the data represents the latest fiscal position of the UK public sector as at 30 September 2016 and so includes 3 months of post-EU referendum data. 

Britain's public finances showed a bigger than expected deficit this month. 

The UK ran a budget shortfall of £10.6bn (excluding state-owned banks), compared with expectations of £8.5bn and £9.27bn last month, data from the ONS showed this morning. 

It said UK public finances were hurt by a fall in corporation tax and stamp duty in the month of September. 

More to follow.. 

Jeremy Cook, of World First, looks at the political forces driving markets this week: 

"A very political week in markets is coming to an end and, bar the shouting, not much has changed.

"Theresa May went to Brussels for a meeting of EU leaders and while her points and presentations were listened to in a polite manner, she was also told in a polite but firm manner that the negotiations are going to be tough by both Angela Merkel and Francois Hollande.

"Similarly, little has changed in the outlook for the US Presidential Election with Clinton once again making gains in nationwide polls following Wednesday night’s debate."

A German central banker has claimed that Europe's economy will emerge from Brexit largely unscathed, and has taken an apparent swipe at Theresa May for criticising the Bank of England's response to the vote to leave the European Union.

Andreas Dombret, a member of the Bundesbank's executive board, said that he did not share fears that "if Brexit hampered the banking sector, it might impair the financing of the European economy".

In a speech to a British Bankers' Association conference, he argued that "Brexit and its possible repercussions for the City of London are unlikely to be an issue for financial stability or the financing of the EU's real economy".

In an unusual move, Mr Dombret also intervened in the simmering dispute between the Prime Minister and Mark Carney, the Governor of the Bank of England, by issuing what he called "a friendly reminder that central bank independence is not debatable". Earlier this month, Mrs May criticised the Bank's reaction to the Brexit vote by warning that there were "bad side-effects" from quantitative easing and rock bottom interest rates.

Mr Carney responded to the comments saying that he would not "take instruction" from politicians.

Report by Ben Martin

Shares in British American Tobacco jumped to the top of the blue chip index, up 3.4pc, after it sparked a $47bn bid for its US peer Reynolds American. 

Kate Palmer reports: 

British American Tobacco, the maker of Dunhill cigarettes, has made a $47bn (£38bn) move to buy the remainder of its US peer Reynolds.

The Telegraph reported earlier this year that the FTSE 100 company had hired bankers in a bid to boost its existing 42.2pc stake in Reynolds, which is the second-largest tobacco business in the US, as it looks for ways to offset declines in the smoking population in developed countries.

Under the offer BAT, which owns the Lucky Strike and Pall Mall brands, will pay Reynolds’ investors $56.50 (£46.14) per share, a 20pc premium on the firm’s closing share price from October 20.

BAT, which faces the threat of a declining appetite for smoking and tighter regulations on home soil, said the merger would boost its presence in the US, the world’s most profitable tobacco market, as well as in emerging territories such as South America, the Middle East and Africa.

Continue reading here

European bourses began the final trading session of the week on the front foot thanks to a weaker euro and strong corporate results. 

• FTSE 100: +0.07pc
• DAX: +0.12pc
• CAC 40: +0.16pc
• IBEX: +0.19pc

 Mike van Dulken, of Accendo Markets, said: "A flat opening call for the last session of the week comes after losses in the US and Asia as investors digest a host of risk events having passed under the bridge (ECB policy update, China GDP, US election debate) and some weak earnings. Lower commodity prices on account of a stronger USD (derived from a weak Euro) are also weighing on risk appetite.

"Although ECB President Mario Draghi may have kept shtum about any QE extension, he has pretty much teed markets up for a December announcement on extension/tweaking once working committees have had time enough to evaluate and deliver their verdict. December also happens to be when markets are pricing in another Fed rate hike, so a busy monetary policy year-end is in store." 

ECB president Mario Draghi's dovish comments sent the euro to its lowest level against the pound since the October 7 flash crash. 

It fell 0.2pc on the day to 99.96p.

Yesterday, the euro hit its lowest level since March following the ECB press conference, when Draghi said the extension of QE and the 'taper' rumour was not discussed. 

Ipek Ozkardeskaya, of London Capital Group, said: "The euro declined as the European Central Bank (ECB) refrained from commenting on the future of the Quantitative Easing (QE) programme, due to end on March 2017, leading investors to think that the bank will not end its asset purchases in an abrupt way.

"ECB President Mario Draghi said the Committee had not discussed regarding the end of the QE, at his press conference post the ECB meeting, triggering discussions on potential ‘QE engineering’ to allow the viability of the programme and to maintain the monetary conditions loose in the Eurozone."

Kathleen Brooks, of City Index, cautions that 'hard' Brexit fears may start to materialise today duing the EU summit in Brussels.

"She has already received a chilly reception, with the President of the European Council, Donald Tusk, saying that the other 27 members of the EU will start to work separately from the UK even before we have triggered Article 50. Some reports have suggested that May is not seeking a close relationship with the EU after Brexit, and her reception at the start of this summit suggests the feeling is mutual."

Such fears could put the pound under pressure, spooking markets once again. It is already trading down 0.27pc lower on the day at $1.2242 against the dollar, having touched a high of $1.2275 in overnight trade. 

"Interestingly, earlier this week key officials had tried to backtrack on May’s “hard Brexit” rhetoric, with Chancellor Hammond saying that no decision on the UK’s Brexit position had been made. Perhaps May is merely posturing for the cameras; after all she can’t look weak in Brussels in front of the important Eurosceptic element of the Tory party who will no doubt be scrutinizing her performance.

"Those who had been banking on a slowdown of the pound’s recent decline, ourselves included, may hope that in private relations with her European counterparts are more cordial. "

Ms Brooks adds that a barrage of tense comments around 'a clean break' for Britain from the EU, single market access and all, could send the pound hurtling back towards $1.20.

"We would also expect it to underperform against the yen and the other safe havens. This could also spur a relief rally in the FTSE 100, which has stumbled in recent days."

Theresa May has been rounded on by EU leaders, who demanded that Britain continue to accept hundreds of thousands of migrants if it is to have any hope of accessing the single market.

The Prime Minister faced a series of threats from her counterparts as she arrived at her first European Council meeting in Brussels.

She will on Friday hold talks with Jean-Claude Juncker, the president of the European Commission, who is expected to criticise her over signals that the Government is pushing for a clean break from Brussels rather than a compromise solution.

However,  Mrs May on Thursday faced a barrage of criticism as she arrived in Brussels.

François Hollande, the French president, told her he intends to make exit negotiations "hard" if Mrs May pushes for a "hard Brexit".

He said: "I have said it very firmly to her. [If ] Theresa May wants a hard Brexit, the negotiations will be hard."

Mrs May later was rebuffed by EU leaders when she complained that the Britain could not be expected to rubber-stamp decisions taken on policies and plans cooked up by the other 27 member states who last month held a major summit in Bratislava without Britain.

Report by Peter Dominiczak and Peter Foster (Read more here)

Good morning and welcome to our live markets coverage. 

Yesterday, Donald Tusk put the pound under pressure by saying that EU leaders would not engage in negotiations on Britain's exit from the bloc at Prime Minister Theresa May's first summit in Brussels.

Donald Tusk said he expected May to brief the other 27 leaders later, but had ruled out negotiations until May formally launches the Brexit process. He rejected suggestions that the new premier would face a hostile reception and said talks would remain cordial. His comments sent the pound to a two-day low. It remains under pressure this morning, floundering below $1.23 as day two of the summit gets under way. 

Meanwhile, attention shifts to UK public sector net borrowing this morning, which is forecast to come in at £8.2bn in September from £10.05bn.

Also on the agenda today: 

Interim results: Schlumberger, Acacia Mining

Trading update: Dechra Pharmaceuticals, InterContinental Hotels Group, Computacenter

AGM: Dechra Pharmaceuticals

Economics: flash services PMI (US), flash manufacturing PMI (US), flash manufacturing PMI (EU), flash services PMI (EU)