The FTSE 100 closed Tuesday’s session marginally lower, with a rally in the pound weighing on the export-dependent index, a day after it entered bull-market territory.
Investors were weighing comments from Bank of England Gov. Mark Carney ahead of the central bank’s meeting on Thursday, where benchmark interest rates could be cut.
The blue-chip benchmark which has darted in and out of positive territory, ended 2.17 points lower at 6,680.69.
The choppy session came as the pound rallied, buying $1.3240 compared with $1.2995 late Monday in New York. The gain came as investors continued to cheer the outlook for Home Secretary Theresa May becoming the new U.K. prime minister on Wednesday, which is expected to steady the outlook for the U.K.’s economy following the turmoil caused by the June 23 Brexit vote.
This added pressure on companies that derive a large portion of their earnings overseas, like drugmaker AstraZeneca PLC down 1.8% and British American Tobacco PLC off 1.6%.
“The appreciation seen in sterling has effectively suppressed the FTSE 100 today. Last week’s FTSE gains were largely associated with fact that international firms will earn abroad and repatriate that money at a better rate,” said Joshua Mahony, market analyst at IG, in a note.
“However, with sterling showing signs of recovery, this relationship is working in inverse, with the FTSE 100 being left behind as its European and U.S. counterparts storm ahead,” he added.
The Stoxx Europe 600 index ended 1.1% higher on Tuesday, while the S&P 500 index and Dow Jones Industrial Average rose to record highs.
Meanwhile, BOE chief Carney addressed the Treasury Select Committee in London about the bank’s Financial Stability Report, which it released after last month’s Brexit referendum.
In a key move, the Financial Stability Committee last week cut its countercyclical buffer for banks to 0% from 0.5%. That should give banks up £150 billion in extra capital to lend out to businesses and households.
Carney stressed that U.K. banks are well-capitalized and “they will need to put that to work.”
He also said “if the [economic] outlook has worsened, to use that term, in the judgment of the [Monetary Policy Committee], there always could be monetary response if that’s consistent with its remit.”
Carney recently alluded to the possibility that the central bank may need to ease monetary policy this summer. Since then, financial markets are pricing a nearly 80% chance that the U.K.’s benchmark interest rate will be cut to 0.25% from 0.5% when it meets on Thursday.
With the potential for lower borrowing costs, shares of most house builders climbed. Taylor Wimpey PLC jumped 3.2%, Barratt Developments PLC rose 2.8% and Persimmon PLC picked up 1.8%.
Most bank shares were also gaining ground, with Barclays PLC up 2.2% and Lloyds Banking Group PLC rising 2.6%. On year-to-date basis, however, Barclays shares have lost a third of their value, while Lloyds’s are down 23%.
HSBC PLC however, shed 0.5%. A report from the U.S. House Financial Services Committee released Monday said top Justice Department officials ignored an internal recommendation to criminally prosecute HSBC four years ago failing to identify money-laundering transactions. An HSBC Group spokesman declined to comment on the report.
The FTSE 100 on Monday jumped 1.4% to 6,682.86, the highest close since August. That gain left the benchmark up 22% from its 52-week intraday low hit on Feb. 11, according to FactSet data. That put the FTSE 100 in bull-market territory, which is marked by a more than 20% jump from recent lows.