London close: FTSE down, pound up as May set to become Prime Minister

The FTSE 100 closed slightly lower on Tuesday as the pound rallied on news Theresa May is set to be the new Prime Minister.

Sterling rose 1.6% against the dollar to $1.3206 at 1620 BST.

May will take over from David Cameron as Prime Minister of the UK on Wednesday after a strong backing from members within the Conservatives Party.

“Theresa May’s confirmation as the country’s new leader may not have had the expected effect on stock markets today, for the appreciation seen in sterling has effectively suppressed the FTSE 100 today,” said IG market analyst Joshua Mahony.

“Last week’s FTSE gains were largely associated with fact that international firms will earn abroad and repatriate that money at a better rate. However, with sterling showing signs of recovery, this relationship is working in inverse, with the FTSE 100 being left behind as its European and US counterparts storm ahead.”

Meanwhile, Bank of England Governor Mark Carney was forced to defend the Bank’s role in the EU referendum on Thursday after being accused of peddling phony forecasts and scare stories that undermined the central bank’s independence.

Speaking to lawmakers on Tuesday in Parliament, Carney also said he did not decide in advance what action the Bank should take on Brexit.

In May Carney was criticised by Leave supporters in the EU referendum after saying there was a chance of a recession.

Minutes of the BoE’s last Financial Policy Committee meetings on 28 June and 1 July were also released on Tuesday. The minutes showed that the Committee had reviewed the sharp moves in the market following the Brexit vote along with recent economic data before deciding to reduce the UK countercyclical capital buffer rate from 0.5% to 0% of banks’ UK exposures.

The BoE is expected to cut interest rates at Thursday’s policy meeting to prevent an economic fallout from Britain’s vote to leave the European Union.

Bank of America Merrill Lynch said the central bank is likely to cut rates by at least 25 basis points. “Rate setters have already recognised Brexit as a bad economic shock. Plenty of data confirm that view. Mark Carney said easing would probably be required. Even if no data were available, we believe the right action would be to cut: just in case.”

Elsewhere, German inflation improved in line with forecasts in June but remained well below the European Central Bank’s target of just below 2%, official data showed on Tuesday.

The consumer price index, on a harmonised basis or HICP, rose 0.1% on the month and by 0.2% on the year, according to the final estimate by Destatis - which was unchanged from the previous estimate. In May HICP inflation grew 0.4% on the month and was unchanged on the year.

Across the Atlantic, St. Louis Fed President James Bullard reiterated in a speech that he reckons only a single interest rate increase will be needed for the foreseeable future.

The NFIB’s US small business optimism index rose to 94.5 in June from 93.8 a month earlier, beating expectations for 94.0.

US wholesale inventories rose 0.1% in May compared to a month ago, the Department of Commerce said, following an upwardly revised 0.7% increase in April. Analysts had expected a 0.2% gain.

The Labor Department revealed in its Job Openings and Labor Turnover Survey that the number of job openings fell by 345,000 to 5.5m in May, driven by a decline in the private sector. The job openings rate was at 3.7% in May. The number of hires was little changed at 5m at a rate of 3.5%.

In the commodities sector, oil prices rose on a weaker dollar with Brent crude up 3.7% to $48.04 per barrel and West Texas Intermediate up 3.3% to $46.31 per barrel at 1652 BST.

The Organization of the Petroleum Exporting Countries on Tuesday downgraded its global growth forecast in 2017 to 3% from a likely 3.1% this year. OPEC said growth in eurozone could slow to 1.2% from 1.5% in 2016 due to the impact of Brexit on the region, where demand for oil could fall.

On the company front, financials rallied after Carney suggested the central bank could intervene if the economy weakened. Aviva, Barclays, Standard Life, Legal & General and Prudential all rose on the news, while wealth manager St James's Place was also higher.

Shire shares rose after the US Food and Drug Administration approved its lifitegrast eye drops for treating signs and symptoms of dry eye disease. Lifitegrast, to be sold under the Xiidra name, is expected to launch in the third quarter.

The stronger pound hit dollar earners such as miners with Randgold Resources, Fresnillo, Centamin and Acacia lower.

Online fashion retailer ASOS gained as it reported a 30% rise in total sales for the four months to 30 June to £500.5m and said it expects full-year sales growth to be at the upper end of the 20-25% range. Total retail sales beat analysts’ expectations of around 23% growth.

The property sector received a boost from Galliford Try after the housebuilder said it still expected full-year profits to be in line with expectations.

Market Movers

FTSE 100 (UKX) 6,677.21 -0.08%
FTSE 250 (MCX) 16,775.14 0.41%
techMARK (TASX) 3,290.61 -0.72%

FTSE 100 - Risers

International Consolidated Airlines Group SA (CDI) (IAG) 409.90p 5.05%
Glencore (GLEN) 186.00p 4.61%
St James's Place (STJ) 825.50p 4.56%
easyJet (EZJ) 1,142.00p 4.29%
Aviva (AV.) 381.80p 4.23%
Prudential (PRU) 1,284.00p 3.38%
Taylor Wimpey (TW.) 145.30p 3.20%
Dixons Carphone (DC.) 329.20p 3.13%
Schroders (SDR) 2,575.00p 2.96%
Legal & General Group (LGEN) 188.90p 2.89%

FTSE 100 - Fallers

Mediclinic International (MDC) 1,060.00p -5.02%
Randgold Resources Ltd. (RRS) 9,115.00p -4.30%
Hikma Pharmaceuticals (HIK) 2,505.00p -3.65%
Fresnillo (FRES) 1,929.00p -2.77%
National Grid (NG.) 1,092.50p -2.24%
Reckitt Benckiser Group (RB.) 7,525.00p -2.17%
Bunzl (BNZL) 2,330.00p -1.98%
AstraZeneca (AZN) 4,467.50p -1.94%
Unilever (ULVR) 3,586.00p -1.91%
Centrica (CNA) 227.50p -1.90%

FTSE 250 - Risers

Rathbone Brothers (RAT) 1,919.00p 11.38%
DFS Furniture (DFS) 207.60p 8.69%
Galliford Try (GFRD) 957.00p 8.50%
Evraz (EVR) 158.30p 8.35%
Marshalls (MSLH) 267.00p 8.27%
Brown (N.) Group (BWNG) 189.50p 8.16%
Aldermore Group (ALD) 139.00p 7.92%
Keller Group (KLR) 1,008.00p 7.69%
Shawbrook Group (SHAW) 164.60p 7.44%
Ocado Group (OCDO) 254.50p 7.38%

FTSE 250 - Fallers

NMC Health (NMC) 1,120.00p -10.33%
Centamin (DI) (CEY) 159.10p -5.63%
Hochschild Mining (HOC) 233.00p -4.31%
Genus (GNS) 1,680.00p -4.22%
Circassia Pharmaceuticals (CIR) 99.40p -3.87%
Acacia Mining (ACA) 538.00p -3.84%
Rotork (ROR) 211.00p -3.48%
UK Commercial Property Trust (UKCM) 76.35p -2.86%
Victrex plc (VCT) 1,545.00p -2.59%
Rentokil Initial (RTO) 205.00p -2.47%