LONDON MARKETS: FTSE 100 Drives Toward First Loss In Four Days As Pound Pops Up On GDP Report

By Carla Mozee, MarketWatch Features Dow Jones Newswires

U.K. GDP growth better than expected Fall in metals prices hurt miners

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U.K. stocks fell Wednesday, driving to intraday lows as a better-than-expected reading on British economic growth after a run of poor data drove the pound up against the U.S. dollar and the euro.

What stocks are doing: The FTSE 100 index fell 0.5% to 7,497.13, led by basic material and utility shares. But the consumer goods group rose modestly.

On Tuesday, the London benchmark rose less than 0.1% (http://www.marketwatch.com/story/uk-stocks-waver-as-whitbread-slides-on-costa-concerns-2017-10-24), ekeing out a third straight gain. It was also the third session in a row that closed with a move smaller than 0.1%.

GDP in focus: The flash reading of GDP for the third quarter from the Office for National Statistics showed quarter-over-quarter growth of 0.4%, which was above the 0.3% forecast from a FactSet poll of economists. Year-over-year growth of 1.5% met expectations.

The report arrived before policy makers at the Bank of England release their decision on their next move for interest rates, on Nov. 2.

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The pound leapt to an intraday high of $1.3203 after the GDP report, up from $1.3133 late Tuesday in New York. Against the euro, sterling fetched EUR1.2114, a rise from EUR1.1167 in the previous session.

But pound strength tends to hurt shares of multinational companies, which are heavily weighted on the FTSE 100. Most profit for FTSE 100 companies is made overseas so a higher pound can squeeze earnings when converted back into U.K. currency.

What strategists are saying:

"The Governor of the Bank of England will breathe a sigh of relief this morning as the preliminary quarterly U.K. GDP estimate surprised markets to the upside," said Anthony Kurukgy, senior sales trader at Foenix Partners, in a note.

"As market participants assume a rate hike in next week's MPC meeting as a done deal, the Bank of England runs the risk of eroding its credibility further with mixed messages currently emanating from its various policy makers if it doesn't hike this year -- over to you, Governor," Kurukgy added.

Mixed inflation and retail sales data, combined with dovish [Monetary Policy Committee] comments, have added to uncertainty over whether the BoE will indeed move on rates this month to reverse last year's cut to 0.25%. That said, markets have been pricing in well above a 50% chance that the bank will do so, around 75%," said Alexandra Russell-Oliver, FX analyst at Caxton.

Stock movers: Among multinationals, shares of engineering company GKN PLC (GKN.LN) fell 1.8%, heating and plumbing supplier Ferguson PLC (FERG.LN) fell 2.1% and consumer products maker Reckitt Benckiser Group PLC (RB.LN) shed 1.1%.

Shares of Lloyds Banking Group PLC (LLOY.LN) flipped up, rising 0.4% after earlier losing more than 1%. The lender said third-quarter pretax profit more than doubled (http://www.marketwatch.com/story/lloyds-upgrades-outlook-after-pretax-profit-soars-2017-10-25), but loan impairments increased.

Miners struggle: A pullback in metals prices weighed on mining stocks. Copper fell nearly 1%, while gold was off 0.4%.

"[I]mproved U.S. yields weigh on gold prices," Ipek Ozkardeskaya, senior market analyst at London Capital Group, wrote in a note. "Gold miners (Randgold and Fresnillo) will likely remain under pressure on cheaper gold."

Shares of Randgold Resources PLC (RRS.LN) (RRS.LN) slumped 1.6%, while Fresnillo PLC (FRES.LN) dropped 2.4%.

The benchmark 10-year Treasury yield (http://www.marketwatch.com/story/10-year-treasury-yield-pushes-above-240-2017-10-24) on Tuesday climbed to its highest level since early May, pushing past 2.40%. Gold, which does not yield interest, typically moves in the opposite direction to U.S. bond yields, because it becomes less attractive to investors.

Meanwhile, Antofagasta PLC (ANTO.LN) said Wednesday its third-quarter production increased by 3% over the previous quarter (http://www.marketwatch.com/story/antofagasta-production-rises-cuts-cost-guidance-2017-10-25). The miner cut its cash-cost expectation for the full year. However, nine-month gold production fell 4.4%. Shares fell 4.2%.

Fresnillo posted a 24% rise in silver production and a 6% increase in gold output for the third quarter of 2017, as it backed its full-year guidance (http://www.marketwatch.com/story/fresnillo-silver-gold-production-up-backs-view-2017-10-25).

(END) Dow Jones Newswires

October 25, 2017 06:19 ET (10:19 GMT)