LONDON MARKETS: FTSE 100 Ends At 1-week Low After Inflation Update Drives Pound Higher
March 13 2018 - 1:47PM
Dow Jones News
By Carla Mozee, MarketWatch
Antofagasta shares higher after earnings report
U.K. stocks dropped to their lowest level in a week Tuesday, as
the pound jumped against the U.S. dollar on fading expectations the
Federal Reserve will accelerate the pace of rate increases in
2018.
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. Market attention also swung to the firing
of U.S. Secretary of State Rex Tillerson
(http://www.marketwatch.com/story/tillerson-out-as-secretary-of-state-as-trump-taps-cia-chief-pompeo-2018-03-13)
by President Donald Trump.
How markets moved
The FTSE 100 index fell 1.1% to 7,138.78, the lowest finish
since March 3, according to FactSet data. Only the basic materials
sector ended higher. 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 $1.3986, up from $1.3848 late Friday in New
York.
What drove markets
Blue-chip shares moved decisively lower in afternoon trade,
keying off a climb in the pound to an intraday high of $1.3994, the
strongest level since Feb. 27, according to FactSet data. The
dollar broadly fell after the U.S. consumer prices index in
February rose 0.2%, matching expectations. That tamped down
concerns that the Fed will raise interest rates four times this
year instead of three as previously expected. U.S. inflation
expectations have been a major driver in global markets this
year.
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 2.1%
and Unilever PLC (ULVR.LN), whose products include Lipton tea, lost
2%. More than half of revenue made by companies listed on the FTSE
100 is generated outside of the U.K.
The U.S. rate of annual inflation is running at 1.7%. Some
questions about the pace of rate increases 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 his Spring Statement in parliament. The statement
included the Office for Budget Responsibility's forecast for the
economy 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. British inflation currently stands at
3%.
See:U.K. economy to grow faster than expected in 2018
(http://www.marketwatch.com/story/uk-economy-to-grow-more-than-seen-in-2018-obr-2018-03-13)
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," Khalaf added.
Stock movers
Antofagasta PLC (ANTO.LN) shares rose 3% 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 2.5% 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 13:32 ET (17:32 GMT)
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