U.K. completes sale of Lloyds shares; wages adjusted for inflation fall
U.K. blue-chip stocks on Wednesday were swept lower for the first time in 10 sessions, dropping alongside U.S. and European equities on concerns about U.S. President Donald Trump's ability to push through Wall Street reforms investors have been anticipating.
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The selloff followed a New York Times report that Trump in February asked then-director of the Federal Bureau of Investigation, James Comey to stop his investigation into former National Security Adviser Michael Flynn (http://www.marketwatch.com/story/us-stock-futures-under-pressure-amid-fresh-concerns-over-trump-2017-05-17). The report, published late Tuesday, cited a memo from Comey.
The FTSE 100 index dropped 0.3% to close at 7,503.47, falling from a record close logged in Tuesday's session (http://www.marketwatch.com/story/ftse-100-clings-onto-record-high-ahead-of-inflation-report-2017-05-16).
Stocks also sank in the U.S., where the Dow Jones Industrial Average on Wednesday and the S&P 500 index sank sharply (http://www.marketwatch.com/story/us-stock-futures-slide-as-concerns-over-trump-grow-2017-05-17).
Across the English Channel, the Stoxx Europe 600 index (http://www.marketwatch.com/story/european-stocks-drop-as-trump-worries-rattle-markets-2017-05-17) slumped 1.2% for its biggest one-day percentage drop since September. Asian stocks (http://www.marketwatch.com/story/asian-markets-mostly-down-as-dollar-continues-to-fall-2017-05-16) also declined.
"Talks around the FBI and Russia keep the risk appetite limited and the U.S. political agenda on the backstage," said London Capital Group's senior market analyst Ipek Ozkardeskaya. He said the U.S. Dollar Index has fallen back to levels last seen around November's U.S. presidential election.
Infrastructure and bank shares world-wide have been among those that have gained on the prospect the Trump administration would boost infrastructure spending, push tax cuts and reforms through Congress and relax regulatory rules for the financial sector.
In London, shares of banking heavyweight HSBC PLC (HSBA.LN) (HSBA.LN) fell 1.3% and engineering company Rolls-Royce Holdings PLC (RR.LN) (RR.LN) gave up 2.6%.
Read:Financial shares tumble as political uncertainty weighs (http://www.marketwatch.com/story/financials-tumble-in-biggest-one-day-drop-in-april-as-political-uncertainty-weighs-2017-05-17)
"The [U.S.] government's inability to expand the fiscal policy at the pace promised by Trump automatically reduces the inflation expectations and gives the Fed more time for normalizing its rates and its balance sheet," said Ozkardeskaya.
See:Trump impeachment? Bookies odds increasingly point to an early exit (http://www.marketwatch.com/story/trump-impeachment-odds-increasingly-point-to-an-early-exit-2017-05-17)
The pound was buying $1.2942, up from $1.2915 late Tuesday in New York, as the dollar declined.
Data: The pound held to gains after the release of jobs data from the Office for National Statistics (http://www.marketwatch.com/story/uk-unemployment-hits-4-decade-low-wages-fall-2017-05-17). The U.K. unemployment rate fell to 4.6%. Weekly earnings excluding bonuses rose 2.4% in three months to March, but adjusted for inflation, they declined by 0.2% compared with a year ago. Headline inflation released Tuesday rose to 2.7% in April. (2.7%%20headline%20inflation%20rate%20released%20Tuesday.)
Wage figures are closely watched by the Bank of England. The Monetary Policy Committee last week held the key interest rate at 0.25%.
"Rate hike on the way? The market could be surprised on how early the BOE hikes," wrote Berenberg's senior U.K. economist Kallum Pickering in a note, adding that the central bank doesn't expect the weakness in wage growth to last.
"We expect the first hike in Q1 2018 with a 40% chance the BOE hikes this year, versus somewhat scattered--depending on the measure - market expectations of a first hike around late-2018/early-2019," he said.
The central bank appears unlikely to raise rates just before the U.K. is expected to leave the European Union around March 2019, he said.
"If the MPC sees an opportunity to raise rates soon, they may take it."
Stock movers: Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) climbed 2%. The lender is back in private ownership after the U.K. government sold its remaining shares in the company (http://www.marketwatch.com/story/lloyds-bank-returns-to-private-ownership-2017-05-17). The government bailed out Lloyds during the financial crisis.
British Land shares (BLND.LN) were down 3.3% after the U.K. property developer posted a decline in the value of a share of its assets, pressured by falling residential, retail and office real-estate prices. (http://www.marketwatch.com/story/british-land-profit-down-as-property-values-fall-2017-05-17)
(END) Dow Jones Newswires
May 17, 2017 12:09 ET (16:09 GMT)