U.K. stock benchmark posts biggest one-day loss since aftermath of Brexit vote
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U.K. stocks saw the biggest one-day slide in nearly 10 months on Tuesday after Britain's Prime Minister Theresa May called an early general election in a bid to strengthen the government's position ahead of Brexit negotiations with the European Union.
The FTSE 100 stumbled 2.5% to close at 7,147.50, marking its biggest single-session percentage drop since June 27 last year. That was a couple of days after the U.K.'s vote to leave the European Union.
Only 11 components were able to move higher, led by a 1.9% rise for department store operator Marks & Spencer PLC (MKS.LN)(MKS.LN). The midcap FTSE 250 index was also dragged lower, ending down 1.2% at 19,297.91.
Investors returning from Monday's holiday in observance of Easter had been dealing with a selloff in mining shares before news emerged that Prime Minister May planned to make an unscheduled statement.
Equity losses then accelerated as the pound surged after May said she wanted an early general election to be held on June 8 (http://www.marketwatch.com/story/uk-leader-theresa-may-calls-snap-general-election-on-june-8-2017-04-18). Blue-chip stocks tend to pull back when sterling strengthens as a stronger pound can cut into earnings and sales made overseas by London-listed multinationals.
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May, leader of the ruling Conservative Party, said a snap election is needed as other parties in parliament are opposed to the government's Brexit plans. Conservatives holds a slim parliamentary majority of 17 seats.
"While the timing might seem ill-judged, the reasons appear twofold: Theresa May described this as a 'moment' in which the EU is consolidating its negotiating position, hence a window of opportunity before the start of more meaningful negotiations," said Richard de Meo, managing director of Foenix Partners, in a note.
"The prime minister feels the negotiation process with Europe is likely to be increasingly frustrated by the conflicting political agendas of domestic party politics. A general election will allow the U.K. parties to lay out Brexit strategies and for the elected party to then implement a much clearer path through EU negotiations," said de Meo.
On Wednesday, May will ask for parliamentary approval for the election.
Sterling hit an intraday high of $1.2774, the strongest level since Dec. 6, according to FactSet data. The pound late Monday in New York bought $1.2565.
"Arguably a stronger government might be able to get a better deal for the U.K. and this could support sterling, but this is likely to be at the margins," said Neil Wilson, senior market analyst at ETX Capital, in a note.
"A stronger Tory majority government could push through a more aggressive version of a hard Brexit that is negative for the pound," he said.
Strategists at Deutsche Bank said Tuesday they were closing out their bearish pound trades. "We intend to review our sterling forecasts in coming days," they said.
Read: Why the snap U.K. election is a 'game-changer' for the pound (http://www.marketwatch.com/story/heres-why-the-pound-surged-to-10-week-high-after-may-called-snap-uk-election-2017-04-18)
Also: Risk of 'a reversal in the entire Brexit process'--analysts react to U.K. election surprise (http://www.marketwatch.com/story/uk-adds-another-layer-of-complexity-analysts-react-to-surprise-snap-election-call-2017-04-18)
Miners: On Tuesday, shares of iron ore and copper producer Anglo American PLC (AAL.LN) dropped 5.1%. Shares of iron ore heavyweights Rio Tinto PLC (RIO) (RIO) (RIO) and BHP Billiton PLC (BLT.LN) (BHP.AU) (BHP.AU) slid 3.8% and 5.6%, respectively.
The moves in miners came as iron-ore prices slumped to five-month lows and copper prices erased most of last week's rebound, Accendo Markets said in a note early Tuesday.
Read: Iron-ore prices hit 5-month lows on China worries (http://www.marketwatch.com/story/iron-ore-prices-drop-to-lowest-levels-since-november-2017-04-18)
"[I]nvestors believe major restocking from Chinese stimulus may now be complete. Said price falls are clearly ignoring Chinese GDP picking up from recent 6.7% lows to hit 6.9%--fastest since Q3 2015--albeit fueled by credit and infrastructure investment and a relentlessly booming property market," wrote analysts Mike van Dulken and Henry Croft of Accendo.
The basic materials group makes up about 8% of the FTSE 100's weighting.
"That iron ore prices are descending further into bear market territory is a particular worry for the FTSE 100. Commodity and multinational companies have contributed some of the biggest gains in the last 12 months," said Jasper Lawler, senior market analyst at London Capital Group, in emailed comments.
Oil prices fell further as the session wore on, down about 0.8%. Shares of oil producer BP PLC (BP.LN) (BP.LN) fell 3.9%, and rival Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) lost 3.1%.
(END) Dow Jones Newswires
April 18, 2017 12:39 ET (16:39 GMT)