FTSE 100 ends above 6,700 for first time in 2016
U.K. stocks surged on Wednesday, sending the FTSE 100 to its highest close since August last year, aided by gains in insurers.
But the benchmark’s moves were tempered by declines in mining shares, which were dragged lower after production updates in the sector.
The FTSE 100 rose 0.5% to end at 6,728.99, enough of an advance to mark its first close above 6,700 in 2016. The FTSE 100 on Tuesday ended less than 0.1% higher.
The benchmark is up almost 8% year to date.
“We’re seeing quite an incredible rise in equities right now. One of the better sectors out of the U.K. has been exporters, strictly playing off of the pound post-Brexit, leading to quite a good scenario in the short-term,” for such companies, said Adam Karrlsson-Willis, vice president of equity trading at INTL FCStone Financial.
The pound hit a 31-year low against the dollar after the June 23 Brexit vote that put the country on track to leave the European Union. A weaker pound makes British goods less expensive to buy for holders of other currencies.
To that point, catalytic converters and specialty chemicals maker Johnson Matthey PLC on Wednesday posted a 6% rise in first-quarter group sales to 822 million pounds ($1.09 billion), aided by a weaker pound. The company also backed its fiscal 2017 guidance. Shares of Johnson Matthey rose 0.9%.
Karrlsson-Willis noted that in terms of Brexit, U.K. Prime Minister Theresa May reportedly plans not to launch formal EU exit negotiations before the end of this year.
“It’s good for the markets to see that it seems as though … people are actually sitting down and trying to make [Brexit] work appropriately for the economy and that’s probably why you’re seeing a good, decent boost to equity markets right now,” Karrlsson-Willis said.
However, there are risks “down the road,” as investors try to assess developments surrounding trade-deal negotiations between the U.K. and the EU, he said.
Miners: Shares of Anglo American PLC dropped 4.8% following a mixed second-quarter production report. Its output of iron ore, coal and platinum increased, but diamond and copper tallies fell. The miner is restructure operations as it responds to volatile commodity prices.
BHP Billiton PLC shares lost 2.3% after the miner said it produced less iron ore than anticipated over the past year.
Meanwhile, precious metals producer Fresnillo PLC raised its full-year gold production forecast, but said it would book an exceptional loss in first-half results because of exchange-rate movements and changes in gold and silver prices. Fresnillo shares turned lower, down by 3.1%.
Other mining stocks traded lower. Glencore PLC lost 2.1%, Antofagasta PLC gave up 1.5%, and Rio Tinto PLC fell 1.6%. Randgold Resources PLC dropped 2.6%.
Insurers and banks: Admiral Group PLC gained 2.8% after a ratings upgrade to buy to neutral by UBS. UBS said it expects greater appreciation of the growth opportunity in the U.K. car-insurance sector, “ultimately driving near term earnings surprises and further multiple expansion.”
Shares of other insurers also were higher, with Legal & General PLC up 3.1%, Prudential PLC tacking on 2% and Direct Line Insurance Group PLC gaining 1.1%.
Meanwhile, bank shares rose although Moody’s Investors Service warned of lower profit and revenue at U.K. banks and a rise in the amount of bad loans as the fallout from the Brexit vote starts to take a toll on the British economy.
Royal Bank of Scotland PLC and Lloyds Banking Group PLC both rose 2.4%.
Shares of HSBC PLC rose 1.7%, holding to gains after a Wall Street Journal report that Mark Johnson, HSBC’s global head of foreign-exchange cash trading, was arrested Tuesday evening at JFK Airport and charged with front-running customer orders.
Other movers: Unilever PLC turned higher by 0.2%. The maker of Dove soap said it planned on buying Dollar Shave Club for $1 billion in cash. The U.S.-based mail-order service ships disposable razors and other grooming products for a flat monthly fee.
Data: The U.K. unemployment rate in the three months to May, the lowest since 2005, the Office for National Statistics said Wednesday. Weekly wages grew 2.2%, excluding bonuses, down from 2.3% growth recorded in the previous three months.
The pound climbed after the report, buying $1.3177 compared with $1.3089 late Tuesday.
The jobs data “reflect pre-referendum conditions and can be taken with a large pinch of salt. Nevertheless, the signs are mildly encouraging,” wrote Ben Brettell, senior economist at Hargreaves Lansdown, in a note.
“The post-referendum reality will gradually become clear over the next few months, and Friday’s preliminary PMI data will provide the first indication of economic activity since the vote,” he wrote.
Source: MarketWatch
