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UKX FTSE 100 Index

7,952.62
20.64 (0.26%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Name Symbol Market Type
FTSE 100 Index FTSE:UKX FTSE Indices Index
  Price Change % Change Price High Price Low Price Open Price Traded Last Trade
  20.64 0.26% 7,952.62 7,975.38 7,931.36 7,931.98 0 16:35:30

LONDON MARKETS: FTSE 100 Closes Lower As Pound Strength, Inflation Worries Hobble Blue-chips

01/12/2016 5:37pm

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By Carla Mozee, MarketWatch

Import costs on the rise

A rising pound and worries about inflation picking up cut down U.K. stocks on Thursday, but energy names continued to get a lift from OPEC's deal to cut oil production.

The FTSE 100 fell 0.5% to close at 6,752.93, but gains for commodity and financial shares helped the index to pare a potential loss of 1%.

Pain was felt across blue-chip stocks as the pound during the session hit a three-month high (http://www.marketwatch.com/story/pound-rallies-to-almost-3-month-high-against-euro-on-soft-brexit-hopes-2016-12-01) against the euro above EUR1.19, and rose above $1.26 for the first time in two weeks against the U.S. dollar . A stronger pound can weigh on multinational companies that make the bulk of their revenue and profit outside of the U.K. Roughly 75% of revenue for FTSE 100 companies is generated outside of the U.K.

Among decliners, consumer-products heavyweight Unilever PLC (ULVR.LN) fell 3.1%, drugmaker GlaxoSmithKline PLC (GSK.LN) lost 1.8%, and British American Tobacco PLC (BATS.LN) dropped 1.9%.

Sterling rose after Eurogroup President Jeroen Dijsselbloem reportedly said the European Union may find a way to keep the U.K. in the single market after the country leaves the bloc. Meanwhile, the U.K.'s Brexit secretary, David Davis, said the government may make contributions to the EU budget in return for access to the single market.

"The comments hint that 'soft' Brexit, preferable to the markets, is still possible, and if Davis' comments bear fruit--then it is likely that the pound would recover even more," said Paresh Davdra, chief executive of foreign exchange service RationalFX, in a note.

Price pressure: But the pound is still well below where it traded before the U.K. voted in June to leave the EU. With that, U.K. manufacturers are seeing their import costs rise because of the weak exchange rate, IHS Markit and CIPS said Thursday.

Consumer-goods stocks fell the most Thursday on worries that "firms will eat the higher costs, at the expense of profits, to offer competitive prices over Christmas," said Jasper Lawler, market analyst at CMC Markets, in a note.

Shares of Smirnoff vodka and Johnnie Walker whiskey maker Diageo PLC (DEO) fell 1.9%, luxury-goods maker Burberry Group PLC (BRBY.LN) lost 1.3%, bottler Coca-Cola HBC fell 3.9% and Lysol maker Reckitt Benckiser Group PLC (RB.LN) fell 2%.

The Markit/CIPS U.K. manufacturing PMI index for November came in at 53.4 compared with a 54.5 FactSet estimate.

The pound eventually came off session highs, trading at $1.2573 against the dollar and at EUR1.1833 versus the euro.

Oil: Brent crude prices pushed toward their highest level in more than a year (http://www.marketwatch.com/story/oil-prices-keep-climbing-after-opec-deal-brent-shoots-above-52-a-barrel-2016-12-01) after OPEC on Wednesday hammered out an agreement to curb daily oil production by 1.2 million barrels a day.

Oil producer BP PLC (BP.LN) (BP.LN) climbed 2.3%, also finding support after a ratings upgrade to outperform at Credit Suisse. Shares of competitor Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) (RDSB.LN) rose 2.8%. Shares in those two energy majors represent a roughly 15% weighting on the FTSE 100.

"It's been clear for some time that the low price of oil has been hurting producers," Michelle McGrade, chief investment officer of TD Direct Investing, wrote in a note.

"A higher oil price, together with a strong U.S. dollar, makes things tougher for U.K. consumers because not only will petrol be more expensive, but this could fuel a stronger surge in inflation than originally expected," she added.

(http://www.marketwatch.com/story/oil-prices-rebound-but-many-doubtful-opec-can-get-a-deal-done-2016-11-30)China lifts miners: Glencore PLC (GLEN.LN) tacked on 1.5% after the company said it planned to reinstate its dividend in 2017, beginning with a payout of $1 billion to investors (http://www.marketwatch.com/story/glencore-to-restart-dividend-with-1-bln-payout-2016-12-01).

Mining stocks were mostly higher after upbeat news from China, a major buyer of industrial and precious metals. Chinese manufacturing data showed an expansion in activity in November. China's official manufacturing PMI rose to 51.7 in November from 51.2 in October (http://www.marketwatch.com/story/china-official-manufacturing-pmi-up-a-second-month-2016-12-01).

Diversified metals producer BHP Billiton PLC (BLT.LN) (BHP.AU) (BHP.AU) added 1.9%, Rio Tinto PLC (http://www.marketwatch.com/story/rio-tinto-under-investigation-by-sec-over-mozambique-impairment-2016-12-01-7103125)(RIO) (RIO) (RIO) rose 1.3% but copper producer Fresnillo PLC (FRES.LN) fell 1.5%.

Housing: House builders were mixed after figures showed U.K. house prices grew at a lackluster clip in November, by 0.1%, (http://www.marketwatch.com/story/uk-house-prices-rise-at-slow-rate-in-november-2016-12-01) according to Nationwide Building Society. Barratt Developments PLC (BDEV.LN) shed 0.4%, Taylor Wimpey PLC (TW.LN) rose 0.9% and Persimmon PLC (PSN.LN) rose 0.2%.

 

(END) Dow Jones Newswires

December 01, 2016 12:22 ET (17:22 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.

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