London close: Stocks drop as sterling gains on Johnson defeats
London stocks underperformed their European counterparts on Thursday, weighed down by a stronger pound as the risk of a no-deal Brexit receded.
The FTSE 100 ended down 0.6% at 7,271.17, dragged lower by a stronger pound even as its European peers rallied on Sino-US trade optimism. Sterling got a lift after Prime Minister Boris Johnson suffered a series of embarrassing defeats in parliament over votes to block a no-deal Brexit and an early election.
The PM was dealt another humiliating blow after his brother Jo quit as Tory MP, saying he was "torn between family and national interest".
Sterling was up 0.7% against the dollar at 1.2338, having fallen below $1.20 earlier this week for the first time since 2017. Against the euro, it was 0.6% higher at 1.1170.
A stronger pound tends to dent the top-flight index as around 70% of its constituents derive most of their earnings from overseas.
Joshua Mahony, senior market analyst at IG, said: "While Johnson could win an election and ultimately attempt to force through a no-deal Brexit, there is no guarantee that he can even get such an election in time to avoid an extension in October. The government has next week to obtain the votes to push through an election, or else Johnson trips up on his own move to prorogue parliament and runs out of time.
"Yes, a no-deal Brexit still remains a possibility, yet we are also seeing a strong chance that the can will be kicked further down the road, alleviating market fears for now at least. If the government fails to secure an election next week, there is a high likelihood we will see the pound’s gains continue for some time yet as trader celebrate the likely A50 extension and delayed election timeframe."
Brexit shenanigans aside, there was some good news on the trade front as the US and China agreed to resume talks in the coming weeks, although some analysts remained sceptical.
Neil Wilson, chief market analyst at Markets.com, said the news should be taken with a good dose of salt.
"It wasn’t that long ago the market was rallying as we thought a deal imminent, now it’s moving on nothing more than confirmation of talks. It highlights the headline risk that traders must contend with and suggests there is very little by way of a strong trend in the markets right now, just a lot of short-termism and uncertainty. A trade deal is a long way away."
In equity markets, companies with an international focus suffered the brunt of the losses, with the likes of Diageo, AstraZeneca, GlaxoSmithKline and Unilever all lower.
Ex-dividends were a drag, with Micro Focus, Admiral, Glencore, RSA, Land Securities, Aggreko, Savills, Domino's Pizza, Flutter Entertainment, G4S, Meggitt, Polymetal and Rathbone Brothers among those in the frame.
Elsewhere, Fresnillo, Acacia Mining, Hochschild Mining and Polymetal were all weaker as gold prices fell.
BHP Group lost ground as it urged shareholders to reject two resolutions that would force the miner to cut its ties with industry lobbying groups whose aims contradict the Paris climate change accord.
CYBG, the owner of Virgin Money and Clydesdale and Yorkshire Banks, was sharply lower after it warned late on Wednesday that it expects to increase its provision for legacy payment protection insurance costs by between £300m and £450m after a surge in claims ahead of the August deadline.
On the upside, turnaround specialist Melrose Industries was the standout gainer as it posted a rise in interim pre-tax profit and hiked its dividend by 10% thanks to a strong showing from its aerospace division, while Wood Group was boosted by a rating upgrade at Jefferies.
Specialist media publisher Future surged after saying it expects full-year core earnings to be "materially ahead" of expectations driven by trading in the US and forex benefits in the final quarter.
FTSE 100 - Risers
Melrose Industries (MRO) 200.60p 8.14%
NMC Health (NMC) 2,752.00p 6.01%
St James's Place (STJ) 969.00p 4.78%
ITV (ITV) 121.20p 4.12%
Legal & General Group (LGEN) 232.10p 3.52%
Royal Bank of Scotland Group (RBS) 190.45p 3.48%
Antofagasta (ANTO) 888.00p 3.16%
Aviva (AV.) 364.40p 2.53%
Taylor Wimpey (TW.) 151.75p 2.46%
Persimmon (PSN) 1,911.50p 2.41%
FTSE 100 - Fallers
Fresnillo (FRES) 723.00p -5.76%
Diageo (DGE) 3,489.00p -3.35%
BHP Group (BHP) 1,751.00p -3.07%
Relx plc (REL) 1,940.00p -2.90%
AstraZeneca (AZN) 7,191.00p -2.71%
Compass Group (CPG) 2,080.00p -2.67%
GlaxoSmithKline (GSK) 1,701.80p -2.49%
National Grid (NG.) 845.30p -2.47%
Unilever (ULVR) 5,179.00p -2.41%
Vodafone Group (VOD) 153.72p -2.06%
FTSE 250 - Risers
Future (FUTR) 1,302.00p 9.23%
Wood Group (John) (WG.) 390.00p 9.09%
Hunting (HTG) 477.00p 5.72%
Tullow Oil (TLW) 219.00p 4.89%
Sports Direct International (SPD) 254.80p 4.77%
B&M European Value Retail S.A. (DI) (BME) 373.90p 4.59%
Redrow (RDW) 591.00p 4.42%
Hammerson (HMSO) 241.80p 3.96%
Galliford Try (GFRD) 610.00p 3.92%
Kaz Minerals (KAZ) 415.80p 3.74%
FTSE 250 - Fallers
CYBG (CYBG) 110.00p -21.40%
Network International Holdings (NETW) 580.00p -7.50%
Acacia Mining (ACA) 253.00p -6.30%
Hochschild Mining (HOC) 210.80p -5.81%
Vivo Energy (VVO) 123.40p -5.66%
Woodford Patient Capital Trust (WPCT) 42.75p -5.00%
Pagegroup (PAGE) 407.20p -4.73%
Polymetal International (POLY) 1,160.00p -4.01%
Hikma Pharmaceuticals (HIK) 1,976.50p -3.54%
Greggs (GRG) 2,020.00p -2.88%