LONDON MARKETS: FTSE 100 Turns Lower As Inflation Updates Drive Pound To Two-week High
13 März 2018 - 04:21PM
Dow Jones News
By Carla Mozee, MarketWatch
Antofagasta shares higher after earnings report
U.K. stocks dropped Tuesday, swinging lower as the pound jumped
to a two-week high against the U.S. dollar on easing concerns the
Federal Reserve will raise borrowings rates at a
faster-than-anticipated pace.
The moves followed the release of the U.S. inflation report for
February, as well as a modest upgrade to the U.K.'s economic growth
forecast for this year.
How markets are moving
The FTSE 100 index fell 0.4% to 7,184.56 after wavering ahead of
the Spring Statement and the report on U.S. inflation, which has
been a major driver of moves across global markets this year. The
oil and gas and basic materials groups moved higher while telecom
and consumer-related stocks fell the most.
On Monday, the benchmark shed 0.1%
(http://www.marketwatch.com/story/ftse-100-struggles-to-keep-grip-on-gains-2018-03-12),
breaking a five-session win streak.
The pound bought $1.3955, up from $1.3848 late Friday in New
York.
What's driving markets
Blue-chip shares moved decisively lower in afternoon trade,
keying off a climb in the pound to an intraday high of $1.3971, the
strongest level since Feb. 27, according to FactSet data.
Sterling strength can hurt shares of London-listed multinational
companies, which make the bulk of their earnings overseas. Among
such companies, British American Tobacco PLC (BATS.LN) fell 1.6%
and Unilever PLC (ULVR.LN), whose products include Lipton tea and
Sure deodorant, lost 1.6%. More than half of revenue made by
companies listed on the FTSE 100 is generated outside of the
U.K.
The dollar broadly fell after the U.S. consumer prices index in
February matched expectations, and that tamped down concerns that
the Fed will raise interest rates four times this year instead of
three as previously expected. The consumer-price index rose 0.2%
and the rate of annual inflation is running at 1.7%. Some questions
about the rate of inflation and the pace of rate hikes were raised
by Friday's U.S. jobs report, which showed a subdued rate of wage
growth.
Read:Consumer inflation less threatening in February, CPI shows
(http://www.marketwatch.com/story/consumer-inflation-less-threatening-in-february-cpi-shows-2018-03-13)
As that report was released, Chancellor of the Exchequer Philip
Hammond delivered the British government's Spring Statement, which
included the Office for Budget Responsibility's economic growth
forecasts. The economy is expected to expand by 1.5% in 2018,
compared with a 1.4% estimate released in November. Growth
forecasts of 1.3% for 2019 and 2020 were unchanged.
Hammond also said U.K. inflation will move toward the 2% target
over the next 12 months. U.K. inflation currently stands at 3%.
What strategists are saying
"The pound rose on currency markets in reaction to the improved
economic forecasts, in particular the expectation that real wage
growth will return to the U.K. this year, raising the prospects for
higher interest rates," said Laith Khalaf, senior analyst at
Hargreaves Lansdown, in a note.
"Despite the upbeat tone from the Chancellor, the U.K. is
clearly out of favor as an investment destination for both domestic
and overseas investors," he said. "While there are clearly risks to
the U.K. economy, the current bout of extreme pessimism towards the
U.K. stock market looks overcooked. The U.K. is home to a diverse
range of companies, many of whom pay a decent dividend, and it
shouldn't be ignored by investors looking for a home for their
money."
Stock movers
Antofagasta PLC (ANTO.LN) shares rose 2.3%, topping the FTSE
100, after the copper producer posted a more than fourfold rise in
2017 net profit
(http://www.marketwatch.com/story/antofagasta-2017-profit-soars-on-copper-price-rise-2018-03-13).
Direct Line Insurance Group PLC (DLG.LN) shares fell 2.2% after
Deutsche Bank downgraded the car and property insurer's rating to
hold from buy.
"We believe Direct Line is now entering a transitory phase where
the capital management story is well understood by investors (hence
reflected in the current share price), whereas the benefits of
positive strategic initiatives may still be a couple of years away
from showing tangible benefit," wrote Deutsche Bank analysts.
(END) Dow Jones Newswires
March 13, 2018 11:06 ET (15:06 GMT)
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