Pound drops sharply to 7-week low
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Blue-chip stocks in the U.K. shot up Friday, carried higher as the pound fell to an seven-week low after the general election left the country facing a "hung parliament," where no single party has a majority.
The FTSE 100 climbed 1.1% to 7,530.70. Futures had started lower but eventually reversed course, leading into a strong open for that British benchmark.
But the more domestically focused and midcap FTSE 250 index fell 0.6% to 19,619.39.
The FTSE 100's climb came after the pound sank below $1.27 (http://www.marketwatch.com/story/pound-tumbles-to-7-week-low-as-uk-exit-poll-points-to-hung-parliament-2017-06-08) , sliding after an exit poll in the U.K.general election showed the Conservative Party struggling to hold onto government. With results in for 647 seats out of the 650 up for election, Prime Minister Theresa May's party has won 316 seats, making it impossible for it to keep its majority in parliament.
See:U.K. election -- So what is a hung parliament? (http://www.marketwatch.com/story/uk-election-so-what-is-a-hung-parliament-2017-06-08)
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"From a market perspective, a hung parliament is seen as one of the worst possible outcomes to this election, because it just injects further uncertainty into the United Kingdom as it heads into Brexit negotiations with the European Union," Jameel Ahmad, vice president of market research at FXTM, said in a note.
Read: 'Worst possible outcome' -- analysts react to U.K. early election results (http://www.marketwatch.com/story/worst-possible-outcome-analysts-react-to-uk-early-election-results-2017-06-08)
U.K. Prime Minister Theresa May called the "snap" out-of-cycle election in April, saying she wanted to create stability as the country went into the negotiations to leave the European Union. At the time, the Conservatives had a huge lead in opinion polls, and the move was seen as a bet to increase her party's majority. That could smooth the way for her plans for Brexit.
Sales made by multinational companies listed on the FTSE 100 can benefit from a weaker value of sterling, and in turn make their shares more attractive to investors. Among such companies, Dove soap and Ben & Jerry's ice cream maker Unilever PLC (ULVR.LN) gained 2.1%, and luxury goods maker Burberry Group PLC (BRBY.LN) tacked on 2.5%.
Banks lose ground: Faring less well were shares in home builders and banks, among the worst performing early Friday. Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) fell 3.2% and Lloyds Banking Group PLC (LLOY.LN) shed 3.1%.
Home builders Taylor Wimpey PLC (TW.LN) and Barratt Developments PLC (BDEV.LN) lost 3.8% and 3.1%, respectively. Persimmon PLC (PSN.LN) gave up 3.1%.
"Increased uncertainty would be expected to slow house purchases and make the [home building] sector less appealing," said Liberum analysts in a note. "However, the sector still has strong underpinnings, and government policy is likely to move away from austerity towards fiscal expansion."
Property stocks were also struggling on the domestically focused FTSE 250 index. Shares in Crest Nicholson Holdings (CRST.LN) were down 6%, and Berkeley Group Holdings PLC (BKG.LN) dropped 4.1%.
Sterling sinks: The pound was buying (http://www.marketwatch.com/story/dollar-rises-pound-hits-7-week-low-as-uk-heads-for-hung-parliament-2017-06-09) $1.2690, but hit an intraday low of $1.2636 Friday, according to FactSet. That's down from around $1.2960 Thursday night.
Ahead of the election, traders were "heavily stacking their cards in favor of a landslide victory for Theresa May when pricing in the U.K. election," said FXTM's Ahmad.
May was facing calls to resign (http://www.marketwatch.com/story/pressure-mounts-on-uk-pm-may-to-resign-as-conservatives-set-to-lose-majority-2017-06-09) (http://www.marketwatch.com/story/pressure-mounts-on-uk-pm-may-to-resign-as-conservatives-set-to-lose-majority-2017-06-09) after her bid to increase the Tory majority failed, though media reports said she planned to stay on and try to form a minority government.
(END) Dow Jones Newswires
June 09, 2017 04:11 ET (08:11 GMT)