Thursday 27 July 2017

May day for sterling but FTSE rises on UK election upset

Employees of a foreign exchange trading company work near monitors showing TV news on Britain's general election and the Japanese yen's exchange rate against the British pound in Tokyo
Employees of a foreign exchange trading company work near monitors showing TV news on Britain's general election and the Japanese yen's exchange rate against the British pound in Tokyo

An election upset for Prime Minister Theresa May sent Britain's major share index shooting up yesterday, feeding off a weaker currency, while housebuilders suffered losses as uncertainty about the UK's leadership grew before Brexit negotiations.

The FTSE 100 gained 1pc after Britons dealt the governing Conservative Party a punishing blow, denying Ms May the increased mandate she had gambled on and forcing her into an alliance with Northern Ireland's DUP party to command a majority in parliament. Individual winners and losers were largely driven by currency, and some sectors seen as particularly sensitive to Brexit instability also saw heavy losses.

But a buoyant US market added fuel to British shares as investors largely shrugged off the political turmoil.

Traders highlighted that volume and volatility were subdued compared with the Brexit vote and US election.

Money managers eyed medium-term tailwinds from the shock result.

Sterling fell as much as 2.4pc before recovering some of its losses.

That boosted the internationally focused and exporter-heavy blue chip index, while stocks with greater domestic exposure were under pressure.

BP, Smurfit Kappa and Diageo, which derive most of their earnings overseas, were top gainers. Housebuilders Taylor Wimpey, Barratt Development and Persimmon all fell and UK-focused banks RBS and Lloyds were also weaker.

Real estate investment trusts (REITs), seen as a barometer of sentiment on Brexit due to their holdings of London office space, were the biggest FTSE all-share fallers on the day.

In Dublin, the Iseq gained 0.18pc. Smurfit Kappa was up 2.1pc after it announced a €50 a tonne increase in kraftliner prices.

Reuters

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