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Jan. 23, 2018, 11:56 a.m. EST

FTSE 100 closes with gains as easyJet soars: Pound lurks near post-Brexit high

Analyst on sterling’s surge: ‘This recent rally looks unjustified’

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By Carla Mozee and Victor Reklaitis, MarketWatch


Bloomberg News/Landov
An easyJet aircraft sits at an airport in Venice, Italy. EasyJet shares flew higher Tuesday.

U.K. stocks closed higher Tuesday, keying off advances on Wall Street as the U.S. government shutdown ended, while easyJet PLC and Sky PLC shares were among the London blue-chip index’s biggest winners.

The pound, meanwhile, edged back after hitting $1.40 against the dollar, which was the highest level seen since the Brexit referendum.

How markets are moving: The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -1.27%  rose 0.2% to end at 7,731.83, rebounding after Monday’s fall of 0.2% and stretching its gain over the past 12 months to 8.1%.

The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.6449%  traded at $1.3978, down slightly from $1.3987 late Monday in New York. It traded as high as $1.4027 on Tuesday.

What’s driving markets: U.K. and European stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.81%  swung up at the open, and then Germany’s DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX -0.77% notched a fresh closing record. The moves followed a win for U.S. stocks /zigman2/quotes/210599714/realtime SPX +3.06%   /zigman2/quotes/210598065/realtime DJIA +2.80% , which closed at record highs late Monday before Congress passed a three-week funding measure that ended a three-day shutdown of the government. American lawmakers still will have to tangle over disagreements on immigration and other issues.

But in the background again was the pound, which ahead of the start of London equity trading rose above $1.40 for the first time since June 2016. A stronger pound can reduce earnings made by multinational companies when they are converted back into sterling, and therefore, hurt share prices of those companies.

Looking ahead, the U.K. monthly jobs report will arrive on Wednesday, and the first look at British gross domestic product in the fourth quarter is due Friday.

Read: What happens with stocks when the government shuts down

What strategists are saying: “The pound charged northwards in the previous session and overnight on Brexit optimism, pushing above the important psychological level of $1.40 for the first time since the Brexit referendum. The move came despite the IMF downgrading U.K. economic growth to just 1.5% next year, from 1.6%,” said Jasper Lawler, head of research at London Capital Group, in a note.

“No matter from which angle you look at it, this recent rally looks unjustified, not least when considering the widening 10 year U.K.-U.S. spread,” Lawler added, referring to the surge for sterling, which is up 3.5% on the buck so far this month.

The yield on the U.S. 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.00%  was recently at 2.62%, around its highest since March 2017, while the yield on the 10-year gilt /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y +2.62%  was down 1 basis point at 1.34%.

Stock movers: EasyJet shares /zigman2/quotes/202825892/delayed UK:EZJ -3.05%  jumped 5.1% after the budget airline posted a 6.6% rise in first-quarter revenue per seat, a closely watched industry metric, and said it expects to maintain a mid-to-high single-digit growth rate at the end of the first half.

Sky  rose 2.3% even as the U.K. Competition and Markets Authority provisionally found the proposed acquisition of British pay-TV giant by 21st Century Fox Inc. /zigman2/quotes/207816609/composite FOXA +3.10% “not in the public interest” because of plurality concerns.

Decliners included advertising heavyweight WPP PLC /zigman2/quotes/202300097/delayed UK:WPP -1.15% , with shares down 2.1%, and mining companies Anglo American PLC /zigman2/quotes/201381512/delayed UK:AAL -2.83%  and Glencore PLC /zigman2/quotes/201400686/delayed UK:GLEN -1.29% , losing 3.9% and 2.9%, respectively.

Off the FTSE 100, Pets at Home Group PLC /zigman2/quotes/200736034/delayed UK:PETS -0.80%  climbed 5.9% after the pet-products retailer said third-quarter revenue increased 9.6% and backed its guidance for the full year.

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Carla Mozée is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee. Victor Reklaitis is a London-based markets writer for MarketWatch. Follow him on Twitter @VicRek.

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