LONDON MARKETS: FTSE 100 Drops As Oil Shares Extend Losses; Pound Rallies On BOE Rate Vote
June 21 2018 - 12:24PM
Dow Jones News
By Carla Mozee, MarketWatch
Shire wins FDA treatment approval
The U.K.'s blue-chip benchmark slid Thursday, falling as oil
shares extended losses, while the pound jumped after one more Bank
of England policy maker joined the ranks in voting for an
interest-rate increase.
How markets are moving
After gaining ground earlier in the session, the FTSE 100 index
dropped 0.9% to close at 7,556.44, erasing its 0.3% gain from
Wednesday
(http://www.marketwatch.com/story/ftse-100-leaps-1-as-commodity-shares-lift-index-off-6-week-low-2018-06-20).
The pound leapt to $1.3250, regaining the $1.3200 handle after
the Bank of England issued its monetary policy decision. Before the
statement, the pound hit an intraday low of $1.3102. Sterling
bought $1.3173 late Wednesday in New York.
What's driving markets
The pound grabbed the spotlight Thursday. It had been on the
edge of falling below $1.3100 against the U.S. dollar to trade at
fresh seven-month lows. But sterling gradually moved higher ahead
of the Bank of England's policy decision then burst through $1.3200
after the central bank said there was a 6-3 vote in favor of
holding its key interest rate at 0.5%.
While markets hadn't priced in expectations of a rate hike,
investors learned the central bank's chief economist Andrew Haldane
joined Ian McCafferty and Michael Saunders in voting for a rate
hike of 25 basis points.
"Inflation is expected to pick up by slightly more than
projected in May in the near term, reflecting higher dollar oil
prices and a weaker sterling exchange rate," the bank said in a
statement.
Meanwhile, losses in shares of oil producers accelerated as oil
prices fell further. Royal Dutch Shell PLC shares (RDSA.LN)
(RDSA.LN) dropped 1.1%, and BP PLC (BP.LN) (BP.LN) lost 0.9%.
Oil prices dropped as members of the Organization of the
Petroleum Exporting Countries closed in on a deal to increase
production, according to media reports. Iran indicated it would
accept a modest rise in output for the group, as OPEC oil ministers
gathered for their summit in Vienna
(http://www.marketwatch.com/story/what-time-is-the-opec-meeting-2018-06-19).
U.K. stocks had earlier showed signs of recovery from their
slide on Tuesday. Global equities were rattled by an escalation in
the trade fight between the U.S. and China, the world's two largest
economies.
Read:China can't match Trump in a tariff fight, but it does have
other weapons
(http://www.marketwatch.com/story/china-cant-match-trump-in-a-tariff-fight-but-it-does-have-other-weapons-2018-06-19)
What strategists are saying
"[S]o more support for [a rate] increase, with the chief
economist changing his mind. That will get markets thinking about
an increase in August. Another significant change was in QE
guidance: the bank won't consider reducing the debt purchased until
the rate reaches 1.5%, down from 2%. This suggests that they now
think rates will have a lower peak this cycle than previously
expected," said Neil Birrell, chief investment officer at Premier
Asset Management, in a note.
"This is mixed news for markets. In the short term, it's a
positive for sterling and we may see gilt yields rise modestly, but
the outlook is still unclear, as is the message from the bank,"
Birrell added.
Stock movers
Dixons Carphone PLC (DC.LN) shares rose 2.4%, even as the
retailer said that fiscal 2018 pretax profit declined 28% amid
challenges in the U.K. electrical business.
"All is not lost, however. As the group maintained some of its
market leading positions, overall revenue edged up, there was a
reduction in net debt and the Nordics region made a strong
contribution," wrote Richard Hunter, head of markets at Interactive
Investor.
Shire PLC (SHPG) (SHPG) climbed 2% after the U.S. Food and Drug
Administration approved the drugmaker's Cinryze hereditary
angioedema treatment to be made available for children aged six
years and older.
(END) Dow Jones Newswires
June 21, 2018 12:09 ET (16:09 GMT)
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