LONDON MARKETS: FTSE 100 Heads To 15-month Low As Strong Pound Bears Down On Stocks
22 Mars 2018 - 2:18PM
Dow Jones News
By Carla Mozee, MarketWatch
Bank of England holds key rate steady, but two policy makers
sought a hike
U.K. stocks slumped toward their lowest point in more than a
year Thursday, as blue-chips were clipped by a jump in the pound.
The currency extended gains as the Bank of England signaled it is
preparing to raise borrowing rates.
How markets are moving
The FTSE 100 index dropped 1% to 6,971.11, on course for its
weakest finish since December 2016. Only the consumer goods sector
was higher. On Wednesday, the benchmark fell 0.3%
(http://www.marketwatch.com/story/ftse-100-loses-ground-as-retailers-drop-with-fed-decision-in-focus-2018-03-21).
The pound on Thursday hit an intraday high of $1.4217, but has
since traded around $1.4160. That's still more than $1.4140 late
Wednesday in New York. Also, sterling rose above EUR1.15 against
the euro for the first time since June 2017.
Sterling has risen about 1.5% against the greenback so far this
week, and by roughly 1.2% against the euro .
What's driving markets
London-listed blue-chip stocks continued to suffer after opening
at their worst level in more than a year. Equities were knocked
down largely on gains for the pound, as sterling traded around its
highest against the dollar since early February, and at a
nine-month high versus the euro.
A stronger pound can hurt stocks on the FTSE 100, as about 75%
of revenue for its multinational components is made overseas.
Sterling hit its strongest intraday levels after the Bank of
England, led by Gov. Mark Carney, signaled that it's looking at a
potential interest-rate hike as U.K. wage growth improves.
Investors had been pricing in a potential hike in May. The BOE for
now held the key rate at 0.5%, but the vote was 7-2 as policy
makers Ian McCafferty and Michael Saunders wanted a rate increase
of 25 basis points.
Ahead of the BOE statement, data showed U.K. retail sales grew
by 0.8%
(http://www.marketwatch.com/story/uk-retail-sales-rebound-in-february-2018-03-22)
on month in February, twice the pace seen in a Wall Street Journal
survey of analysts.
The pound had been moving higher against the dollar since late
Wednesday after the Fed signaled three interest rate increases in
2018, disappointing investors hoping for four hikes after upbeat
inflation and labor data. The U.S. central bank did raise its
benchmark fed funds rate as expected
(http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21).
The Fed's monetary policy tends to drive financial markets
globally, as many companies do business in the word's largest
economy and it can lift borrowing rates for them.
What strategists are saying
"Inflation seems to be falling back towards the target of 2%, as
the effect of the weaker pound starts to filter out of the
calculation. But a pick-up in wage growth points to an erosion of
slack in the labor market. This raises the prospect that a
wage-price spiral could push inflation back up in future. Throw in
a hefty dose of Brexit-related uncertainty and it's easy to see why
the committee is divided at present," said Ben Brettell, senior
economist at Hargreves Lansdown, in a note.
"It now looks increasingly likely we'll see a rise to 0.75% at
the Bank's May meeting. Beyond that the outlook is less clear. As
ever, the bank is at pains to point out that the pace of interest
rate rises will be gradual. Much will depend on how Brexit
negotiations progress, but it's possible that further wage rises
could force policy makers into a further rise this year," he
added.
Stock movers
Reckitt Benckiser Group PLC (RB.LN) shares rallied 5.8% after
the consumer goods company said it's ending talks about its
potential purchase of Pfizer Inc.'s
(http://www.marketwatch.com/story/reckitt-benckiser-ends-talks-to-buy-pfizer-unit-2018-03-22-44851030)(PFE)
consumer health-care business. Reckitt Benckiser said it was
looking to buy just part of the business, but that goal couldn't be
met.
The move is seen as leaving GlaxoSmithKline PLC (GSK.LN) in
prime position to buy the Pfizer assets. GSK shares were down
1.3%.
GKN PLC (GKN.LN) turned higher and were up 0.1%. The engineering
group said it continues to view the GBP8.1 billion ($11.4 billion)
hostile takeover offer from Melrose Industries PLC (MRO.LN) as
entirely opportunistic
(http://www.marketwatch.com/story/gkn-melrose-offer-still-wholly-inadequate-2018-03-22-44851155).
Its statement came after Melrose announced it had come to an
agreement with GKN's pension-scheme trustees.
Shares of Halma PLC (HLMA.LN) fell 3.1% after the safety, health
and environmental tech group said foreign-exchange benefits have
reversed and pretax profit for the full year will be in line with
market forecasts
(http://www.marketwatch.com/story/halma-sees-2018-profit-in-line-with-forecasts-2018-03-22).
Check out:Brexit hard-liners fling fish into Thames in bizarre
protest
(http://www.marketwatch.com/story/brexit-hard-liners-fling-fish-into-river-thames-in-bizarre-protest-2018-03-21)
(END) Dow Jones Newswires
March 22, 2018 09:03 ET (13:03 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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