LONDON MARKETS: FTSE 100 Knocked Back As Banks Fall, Pound Surges

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Blue-chips benchmark on track for weekly rise

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U.K. stocks fell Friday, rounding off a winning week overall for London blue-chips with losses for bank stocks and a 1% surge by the British pound against the U.S. dollar.

The FTSE 100 index fell 0.5% to end at 7,378.39, with only the basic materials and tech groups notching gains. Financial shares put in the worst performance.

For the week, the index benchmark finished up 0.4%. Stocks had posted strong advances during the week after U.S. Federal Reserve Chairwoman Janet Yellen indicated that interest rates for may not have to rise much further to achieve a neutral policy stance.

But the FTSE's decline on Friday worsened as the session wore on.

"The scene was set when the U.S. posted inflation and retail sales numbers which came in below expectations, and then when the preliminary University of Michigan consumer sentiment dropped, the FTSE 100 tumbled due to the spike in sterling," wrote CMC Markets analyst David Madden.

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Read:What inflation? Consumer prices flat in June, CPI shows (http://www.marketwatch.com/story/inflation-goes-nowhere-in-june-cpi-shows-2017-07-14)

The pound packed on more than 1%, reaching an intraday high of $1.3094, to put itself of course for its highest settlement of the year. The pound on July 3 reached an intraday high of $1.3175, according to FactSet data.

A stronger pound can hurt shares of multinationals on the FTSE 100 as those companies make the bulk of their revenue and earnings in overseas markets. Among such companies, luxury-goods maker Burberry Group PLC (BRBY.LN) fell 1.4% and cruise-ship operator Carnival PLC (CCL.LN) gave up 1.3%.

"The powerful pound aside, the FTSE 100 would be further in the red if it wasn't for the likes of Fresnillo, Randgold Resources, Anglo American, Glencore and Rio Tinto. The weakness in the U.S. dollar has pushed up silver, gold and copper prices," that are dollar-denominated, and in turn, supported gains for mining companies, Madden said.

Topping the FTSE 100, shares of diversified miner Anglo American PLC (AAL.LN) popped up 2.1%. Copper producer Fresnillo PLC (FRES.LN) rose 1.6%, Randgold Resources Ltd. (RRS.LN) added 1.3% and Rio Tinto PLC (RIO) (RIO) (RIO) tacked on 0.8%. Glencore PLC (GLEN.LN) ended 0.5% higher.

Sterling bought $1.2940 late Thursday, when it jumped following hawkish comments from Bank of England policy maker Ian McCafferty, who called for an early unwinding of the central bank's quantitative easing program.

A reading on U.K. inflation in June will be released Tuesday. The rate hit 2.9% in May, the highest reading in four years, as prices for imported goods such as cars and some food have increased on the back of sterling's plunge in the wake of last year's Brexit referendum.

Banks: U.K. bank shares followed losses for their peers on Wall Street Friday (http://www.marketwatch.com/story/financial-etf-seeing-worst-day-in-2-months-after-weak-bank-results-2017-07-14). Investors pored over the first wave of financial results for the second-quarter earnings season for any read-through on what could be in store for U.K. and European lenders, many of which have U.S. operations.

J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) each posted higher-than-anticipated profit, but they also reported weaker trading revenue, falling short of what analysts had expected.

In London, Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) fell 1.7%, HSBC Holdings (HSBA.LN) (HSBA.LN) declined 1.4% and Barclays PLC (BCS) (BCS) flopped down 1.3%. Standard Chartered PLC (STAN.LN) gave up 0.9% and Lloyds Banking Group PLC (LLOY.LN) ended 0.7% lower.

Stock movers: Sky PLC shares (SKY.LN) finished 0.5% lower as investors watched for news on whether the GBP11.7 billion proposed takeover of the telecom and media company by 21st Century Fox (FOX) would be referred to the U.K.'s competition authority. Sky shares dropped 2.1% on Thursday following a Guardian newspaper report (https://www.theguardian.com/media/2017/jul/13/rupert-murdoch-will-not-offer-new-sky-deal-to-culture-secretary) that 21st Century wouldn't offer further concessions to Britain's culture secretary to fast track the proposed deal.

Shares of AstraZeneca PLC (AZN.LN) (AZN.LN) fell 0.3%, adding to a 3.5% loss from Thursday. The weakness came following reports Chief Executive Pascal Soriot was set to become CEO of Teva Pharmaceutical Industries Ltd. (TEVA).

Brexit news: The U.K. government late Thursday published its first draft legislation on Brexit (https://www.wsj.com/articles/british-bill-sets-up-more-brexit-strife-1499962246), designed to revoke a 1972 law that made European Union law applicable in the U.K. The bill marks the first step in what is expected to be a tough battle negotiating the U.K.'s exit from the EU.

The government also for the first time explicitly acknowledged it has financial obligations to the EU--the so-called exit bill--that will need to be resolved. The exit bill has been a major point of contention, with U.K. Foreign Secretary Boris Johnson saying the EU can "go whistle" if it demands "extortionate sums". (http://news.sky.com/story/boris-johnson-eus-exit-bill-demand-extortionate-10944564)

(END) Dow Jones Newswires

July 14, 2017 12:34 ET (16:34 GMT)