London close: Stocks close lower as pound hammered by Brexit

The FTSE 100 finished in the red on Wednesday as the pound plunged against the dollar on growing Brexit fears.

The pound fell 1.02% to $1.2889, a level not seen since 1985, highlighting the negative impact of Britain’s vote to leave the European Union on 23 June.

“In a world where around $10 trillion of global government credit has yields at or below zero, it is clear that investors are desperately seeking for safety wherever it can be found,” said IG market analyst Joshua Mahoney.

“Today’s 27-month high in gold and Monday’s near two-year high for silver highlights the underlying rush to havens in an increasingly uncertain future.”

Mining stocks, including Randgold Resoruces and Fresnillo, rallied on the increase in silver and gold prices as investors sought out perceived safe-haven assets in the wake of Brexit.

Heading in the other direction, supermarkets Tesco, Morrisons and Marks & Spencer moved lower after shop price data from BRC-Neilsen showed deflation decreased to -2% in June, raising the prospect of further erosion of profit margins.

Life insurance stocks were also under pressure after Aviva, Standard Life and Prudential stopped trading in their property portfolios due to risks following Brexit.

In economic data, Germany factory orders unexpectedly fell in May. Orders dropped 0.2% year-on-year, compared to forecasts for a 0.9% rise and the previous month’s 0.4% decline.

Markit’s purchasing managers index on eurozone retail fell to 48.5 in June from 50.6 in May, signalling a contraction in sector activity. The report blamed the contraction on a sharp drop in sales in Italy.

Stateside, services data came in better than expected.

Markit’s US services PMI was unexpectedly revised higher to 51.4 in June from a previous estimate of 51.3. It compared to a reading of 51.3 in May.

The Institute for Supply Management´s PMI on services rose to 56.5 in June from 52.9 in June, beating estimates of 53.3.

The US trade deficit in goods and services worsened by 10.1% month-on-month to $41.1bn in May as exports fell, according to the Department of Commerce, its highest since August 2015. Economists had been expecting a gap of $40.0bn.

Still to come, the Federal Reserve releases the minutes of its 15 June policy meeting at 1900 BST. The central bank decided to keep interest rates unchanged last month after a weak May job report and amid uncertainty leading up to the 23 June European referendum.

While the Fed’s stance on interest rates may have changed since Brexit, the minutes will reveal more details behind the decided to leave policy on hold.

“The Fed is now unlikely to consider rate hikes in the coming months as it analyses the impact of Brexit but the minutes could still provide insight into how close they were to raising and how much of a deterrent the UK’s decision could be. For another hike to remain on the table this year, the jobs data will have to remain strong overall and rebound from last month’s disappointment," said Craig Erlam, senior market analyst at Oanda.

The US non-farm payrolls report will be released on Friday.

Market Movers

FTSE 100 (UKX) 6,468.87 -1.17%
FTSE 250 (MCX) 15,668.45 -0.42%
techMARK (TASX) 3,207.67 -0.27%

FTSE 250 - Risers

Hochschild Mining (HOC) 230.10p 13.52%
Centamin (DI) (CEY) 165.80p 12.79%
Acacia Mining (ACA) 537.50p 8.02%
Vedanta Resources (VED) 454.40p 6.92%
Fidessa Group (FDSA) 2,080.00p 5.00%
Homeserve (HSV) 510.00p 4.19%
Polymetal International (POLY) 1,128.00p 4.16%
Synthomer (SYNT) 331.90p 3.40%
Polar Capital Technology Trust (PCT) 630.50p 3.36%
Telecom Plus (TEP) 1,030.00p 3.26%

FTSE 250 - Fallers

Tullow Oil (TLW) 210.90p -12.34%
CLS Holdings (CLI) 1,221.00p -7.85%
Softcat (SCT) 280.00p -6.67%
Clarkson (CKN) 1,677.00p -6.57%
Thomas Cook Group (TCG) 54.65p -6.18%
Aldermore Group (ALD) 104.80p -5.92%
Sophos Group (SOPH) 204.00p -5.86%
Virgin Money Holdings (UK) (VM.) 206.30p -5.80%
Big Yellow Group (BYG) 662.50p -5.69%
Rightmove (RMV) 3,171.00p -5.62%