Pound drops sharply to 7-week low
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 with a hung parliament, where no single party has a majority.
The FTSE 100 climbed 0.9% to 7,516.46, the strongest gain since May 16, according to FactSet data. Futures had started lower but eventually reversed course, leading into a strong open for that British benchmark.
The more domestically focused and midcap FTSE 250 index spent most of the session lower before edging up 0.1%.
For the week, the FTSE 100 was on a track to fall 0.4% and the FTSE 250 was looking at a weekly decline of 1.2%.
Friday's climb for the FTSE 100 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), hit hard after early indications pointed to the Conservative Party struggling to hold onto control of government.
"Whilst the election result is a shock result for any asset class, it's evident that the overnight discount on the pound has proved to be too tempting for investors in British companies that export goods or services overseas. This has given the top-tier index a shot in the arm," said Ken Odeluga, market analyst at City Index, in a note.
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.
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 most 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 2%, and luxury goods maker Burberry Group PLC (BRBY.LN) tacked on 2.4%.
Sector losers: But shares in home builders and banks were among the worst performing. Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) fell 2.7% and Lloyds Banking Group PLC (LLOY.LN) shed 1.1%.
Home builders Taylor Wimpey PLC (TW.LN) and Barratt Developments PLC (BDEV.LN) lost 3.1% and 2.6%, respectively. Persimmon PLC (PSN.LN) gave up 2.1%.
"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 4.9%, and Berkeley Group Holdings PLC (BKG.LN) dropped 3.6%.
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) $1.2743, but earlier hit an intraday low of $1.2636. 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. But she 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.
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 11:02 ET (15:02 GMT)