LONDON MARKETS: FTSE 100 Snaps 3-day Win Streak As Strong U.K. Growth Boosts Pound
U.K. GDP growth better than expected
U.K. stocks closed lower Wednesday after a stronger-than-expected reading on British economic growth drove the pound up against the U.S. dollar and the euro.
What stocks are doing: The FTSE 100 index fell 1.1% to end at 7,447.21.
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), notching a third straight gain. It was also the third session in a row that stocks closed with a move smaller than 0.1%.
GDP in focus: A preliminary reading of third quarter U.K. gross domestic product 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.
The pound was trading at $1.3256 after the GDP report, up from $1.3133 late Tuesday in New York. Against the euro, sterling fetched EUR1.1230, 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 said.
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 1.4%, heating and plumbing supplier Ferguson PLC (FERG.LN) dropped 1.7%, and consumer products maker Reckitt Benckiser Group PLC (RB.LN) shed 0.3%.
GlaxoSmithkline PLC (GSK.LN) closed 5.5% lower. In a quarterly results call, its management voiced caution about the drug company's near-term outlook and dividend, a Dow Jones Newswires report said.
Shares of Lloyds Banking Group PLC (LLOY.LN) flipped up, rising 0.8% 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 price (http://www.marketwatch.com/story/gold-trades-at-nearly-3-week-lows-with-eyes-on-stronger-dollar-and-fed-leadership-2017-10-25)s weighed on mining stocks. Copper was recently down about 0.4%, while gold was off 0.1%, after each metal erased steeper losses.
"[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 1.4%, while Fresnillo PLC (FRES.LN) dropped 2.3%.
The benchmark 10-year Treasury yield (http://www.marketwatch.com/story/10-year-treasury-yield-pushes-above-240-2017-10-24)climbed to its highest level since March (http://www.marketwatch.com/story/10-year-treasury-yield-hits-7-month-high-as-traders-await-fed-pick-2017-10-25). 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 4.4%.
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 17:16 ET (21:16 GMT)