Pound drops sharply to 7-week low
Blue-chip stocks in the U.K. reversed gains to close lower Friday as the pound fell to an seven-week low following a general election that left the country with a hung parliament, where no single party has a majority.
The FTSE 100 fell 0.4% to close at 7,449.98. The more domestically focused and midcap FTSE 250 index spent most of the session lower before closing up 0.2%.
For the week, the FTSE 100 and the FTSE 250 were both down 1.3%.
"The U.K. election result is a hammer blow for a hard Brexit," said Nigel Green, chief executive of deVere Group, in a note. "The financial markets had almost already priced-in a hard Brexit and will now have to quickly reassess their position."
The pound recouped losses to trade at 1.2744 after earlier sinking 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), hit hard after early indications pointed to the Conservative Party struggling to hold on to control of government.
Votes have now been counted in 649 of the 650 total constituencies, and Prime Minister Theresa May's Conservatives won 318 seats. That falls short of the 326 needed to hold a majority in the House of Commons. The rival Labour Party, led by Jeremy Corbyn, won 261 seats.
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)
"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," wrote Jameel Ahmad, vice president of market research at FXTM.
May has resisted pressure to step down, and plans to form a new government, most likely with assistance from Northern Ireland's Democratic Unionist Party, which holds 10 seats.
Read: 'Worst possible outcome'--analysts react to U.K. election result (http://www.marketwatch.com/story/worst-possible-outcome-analysts-react-to-uk-early-election-results-2017-06-08)
And:The U.K. election result could mean a 'softer' Brexit (http://www.marketwatch.com/story/what-will-uk-election-result-mean-for-brexit-2017-06-08)
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.
The pound's slide helped push up shares of some multinational companies listed on the FTSE 100, as a weaker sterling can boost sales by those companies in overseas markets. Among such companies, Dove soap and Ben & Jerry's ice cream maker Unilever PLC (ULVR.LN) gained 1.4%, and luxury goods maker Burberry Group PLC (BRBY.LN) tacked on 1.5%.
Sector losers: But shares in home builders and banks were among the worst performing. Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) fell 2.5% and Lloyds Banking Group PLC (LLOY.LN) shed 1%.
Home builders Taylor Wimpey PLC (TW.LN) shed 3.3% and Barratt Developments PLC (BDEV.LN) lost 2.3% while Persimmon PLC (PSN.LN) gave up 1.3%.
"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) slumped 5.2%, and Berkeley Group Holdings PLC (BKG.LN) dropped 3.6%.
Sterling sinks: The pound (http://www.marketwatch.com/story/dollar-rises-pound-hits-7-week-low-as-uk-heads-for-hung-parliament-2017-06-09) earlier hit an intraday low of $1.2636 versus $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.
See:May looks to smaller Northern Irish party for support after election rebuke (https://www.wsj.com/articles/u-k-s-theresa-may-looks-to-smaller-party-to-form-government-1497003906)
(END) Dow Jones Newswires
June 09, 2017 12:14 ET (16:14 GMT)