London close: Pound strength, French election uncertainty weighs on stocks
(ShareCast News) - Theresa May's decision to call for snap elections triggered a sharp reversal in traders' preferred Brexit plays, with the more internationally focused Footsie getting pummelled as Sterling leapt higher in reaction, even as shares of homebuilders found a bid.
At the close, the FTSE 100 is down by 2.46% or 180.09 points to 7,147.50, while the FTSE 250 has surrendered 1.16% to finish at 19,297.91. In parallel, the pound is strengthening 1.54% against the US dollar and trading at 1.2759.
A stronger pound tends to dent the FTSE 100 as around 70 of its constituents derive their earnings from overseas.
Markets appear to have interpreted May's decision as reducing the risk of the UK crashing out of Brexit, although some traders in the City believe the risk of a hard-Brexit has in fact increased given the prospect for a larger Conservative majority in Parliament.
However, one of the most 'bearish' brokers on the pound, Deutsche Bank, told clients that holding elections now will give Westminister more time to properly negotiate the UK's exit terms without the threat of elections in 2020 hanging over it, strengthen the PMs hand in negotiations with Brussels and reduce her reliance on the most hardcore Eurosceptics.
"This sequenced approach materially reduces the "crash risk" of Brexit negotiations as well as strengthening the Prime Minister's hand in pursuing an orderly (and very lengthy) withdrawal. All of the above in turn reduce downside risks for the U.K. growth outlook over Brexit negotiations," Deutsche Bank's Oliver Harvey and George Saravelos said in a research note sent to clients.
Yet even as political uncertainty in Britain appears to be on the decline, in France it has arguably increased.
The latest daily poll from Opinionway published early today shows that Far-left Jean Luc Melenchon continues to whittle away at his rivals' lead ahead of the first round of voting next Sunday.
He is now almost neck-and-neck with former PM Francois Fillon for third place and at 19% is only three points away from Marine Le Pen, who has now slipped to second place. Hence, with some many voters as of yet undecided, analysts believe there is a risk of a nasty surprise come next Monday morning.
"A stronger-than-expected showing for Le Pen and/or Mélenchon could rattle markets severely, given that both favour a referendum on French membership of the euro.
"Although no polls have so far come close to suggesting a run-off between them is likely, if Mélenchon maintains his recent momentum it can't be ruled out entirely," analysts at HSBC said.
Meanwhile, another sharp drop for iron ore prices - in particular - left a big dent in miners' shares on Tuesday, as traders brushed off much better than expected data on China's economy released yesterday.
Analysts expect Chinese steel producers to continue cutting capacity even as property controls in the country begin to bite.
Prices for most industrial metals also began the week on a weak note.
BHP Billiton, Vedanta, Anglo American, Glencore, and Antofagasta were all sharply lower.
In corporate news, Ashmore Group was in the red despite saying it returned to net inflows into its funds in the three months to the end of March as investors regained confidence in emerging markets. Assets under management increased by $3.7bn during the third quarter, comprising positive investment performance of $2.3bn and net inflows of $1.4bn.
Daily Mail & General Trust ticked lower after selling its US video sharing platform Elite Daily to Bustle Digital Group for an undisclosed sum.
Exeter-based airline Flybe Group finished the day unchanged as it announced that its chief financial officer Philip de Klerk had resigned to take up the position of CFO at another unnamed company.
Bovis Homes got a lift after Jefferies upped the stock to 'Buy'. The same broker also lifted its target prices on the likes of Galliford Try, Bellway, Berkeley, Crest Nicholson, Persimmon, Redrow and Taylor Wimpey.
Esure and Hastings were cut cut to 'Equalweight' at Barclays, while Foxtons was cut to 'Neutral' at Citigroup.
FTSE 100 (UKX) 7,147.50 -2.46%
FTSE 250 (MCX) 19,297.91 -1.16%
techMARK (TASX) 3,399.90 -2.08%
FTSE 100 - Risers
Marks & Spencer Group (MKS) 353.50p 1.93%
Barratt Developments (BDEV) 580.00p 1.40%
Persimmon (PSN) 2,242.00p 0.95%
Taylor Wimpey (TW.) 198.60p 0.86%
Land Securities Group (LAND) 1,125.00p 0.72%
Hammerson (HMSO) 589.00p 0.60%
Kingfisher (KGF) 328.50p 0.46%
British Land Company (BLND) 655.00p 0.38%
Associated British Foods (ABF) 2,718.00p 0.33%
Convatec Group (CTEC) 289.70p 0.21%
FTSE 100 - Fallers
BHP Billiton (BLT) 1,198.00p -5.59%
Glencore (GLEN) 291.80p -5.58%
Anglo American (AAL) 1,110.00p -5.13%
BP (BP.) 452.60p -3.93%
Johnson Matthey (JMAT) 2,901.00p -3.81%
Rio Tinto (RIO) 3,003.00p -3.78%
GlaxoSmithKline (GSK) 1,586.50p -3.67%
Shire Plc (SHP) 4,418.00p -3.64%
Burberry Group (BRBY) 1,701.00p -3.52%
Antofagasta (ANTO) 806.50p -3.41%
FTSE 250 - Risers
Howden Joinery Group (HWDN) 463.10p 2.43%
Sports Direct International (SPD) 318.40p 2.35%
Capital & Counties Properties (CAPC) 320.30p 1.68%
Bovis Homes Group (BVS) 926.50p 1.65%
Softcat (SCT) 428.20p 1.45%
Safestore Holdings (SAFE) 406.50p 1.17%
Unite Group (UTG) 657.00p 1.08%
Crest Nicholson Holdings (CRST) 574.00p 1.06%
Berkeley Group Holdings (The) (BKG) 3,213.00p 1.04%
SEGRO (SGRO) 484.30p 0.92%
FTSE 250 - Fallers
Ferrexpo (FXPO) 138.60p -10.58%
Vedanta Resources (VED) 699.50p -8.02%
Evraz (EVR) 207.10p -6.54%
Acacia Mining (ACA) 464.70p -5.82%
Ashmore Group (ASHM) 343.80p -5.45%
JRP Group (JRP) 121.60p -5.30%
Tullow Oil (TLW) 218.20p -4.51%
Hochschild Mining (HOC) 273.30p -4.41%
Cairn Energy (CNE) 200.10p -3.94%
Hunting (HTG) 581.00p -3.89%