LONDON MARKETS: FTSE 100 Drops As Oil Shares Extend Losses; Pound Rallies On BOE Rate Vote

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)

Copyright (c) 2018 Dow Jones & Company, Inc.