LONDON MARKETS: FTSE 100 Retreats From Record High As Trump Concerns Flare Up
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 reforms investors have been wanting.
The selloff followed a New York Times report that Trump in February asked then-Federal Bureau of Investigation Director 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 0.5% to 67,487.46, driving to intraday lows after trading on Wall Street opened. There, the Dow Jones Industrial Average at one point lost nearly 250 points (http://www.marketwatch.com/story/us-stock-futures-slide-as-concerns-over-trump-grow-2017-05-17) and the S&P 500 Index sank 1.1%.
In London, basic material and industrial shares lost the most, but consumer goods and utility shares advanced. 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 0.9%. 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, noting the U.S. Dollar Index has fallen back to levels last seen around November's U.S. presidential election.
Infrastructure and bank shares worldwide 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 1.1% and engineering company Rolls-Royce Holdings PLC (RR.LN) gave up 2.4%.
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 $1.2959, up from $1.2915 late Tuesday in New York, as the dollar declined.
The FTSE 100 on Tuesday finished above 7,500 for the first time (http://www.marketwatch.com/story/ftse-100-clings-onto-record-high-ahead-of-inflation-report-2017-05-16). A loss Wednesday would be the first after nine sessions of gains. In January, the index ran up for 14 consecutive sessions.
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 1.9%. 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 pulled down 3.3% after the U.K. property developer posted a decline in the net value 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 10:29 ET (14:29 GMT)