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May 24, 2018, 10:46 a.m. EDT

FTSE 100 drops as pound climbs after strong retail-sales data

Pound rebounds from 2018 low

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By Sara Sjolin, MarketWatch


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Shoppers on Oxford Street in London.

U.K. stocks traded lower on Thursday as the pound rallied on the back of better-than-expected retail sales data that brought a Bank of England interest-rate rise in August back in to play.

The benchmark index extended losses in the afternoon after U.S. President Donald Trump called off a meeting with North Korea planned for next month.

What are markets doing?

The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.71%  was trading 0.7% lower to 7,734.26, adding to a 1.1% loss from Wednesday.

The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0653%  climbed to $1.3388 from $1.3348 late Wednesday in New York. Sterling fell to a fresh 2018 low on Wednesday, after official figures showed U.K. inflation unexpectedly declined in April, seen as dampening expectations for a summer rate hike by the BOE.

What is driving the market?

However on Thursday, the retail sales report painted a more upbeat picture of the U.K. economy and suggested the economy may be able to stomach a rate hike this summer. Retail sales rose 1.6% month-on-month in April, beating forecasts of a 0.2% rise, recovering after a spell of cold weather.

Investors in the U.K. are watching data closely, after BOE Gov. Mark Carney emphasized that the central bank’s next policy move depends on an improvement in British economic health.

Stocks across Europe took a leg lower in the afternoon after Trump called off a planned summit meeting with leader Kim Jong Un of North Korea that was due to take place on June 12 in Singapore. Trump said it was inappropriate to go ahead with the meeting based on the “tremendous anger and open hostility” displayed Kim’s most recent statements.

“The World, and North Korea in particular, has lost a great opportunity for lasting peace and great prosperity and wealth. This missed opportunity is truly a moment in history”, Trump said in a letter to the North Korean leader .

Staying in the U.S., Trump rekindled concerns of a global trade war, announcing an investigation that could lead to import tariffs on cars.

Traders were also still digesting the minutes from the U.S. Federal Reserve’s May 1-2 meeting, which were released late Wednesday. The account of the gathering suggest that the Fed is on track to raise interest rates in June and is keeping calm about the inflation outlook.

Check out: How stock-market investors could be surprised by a peak in interest rates

What are strategists saying?

“The pound was buoyed this morning as retails sales beat expectations across the board. This is a small reprieve for Mark Carney at the Bank of England, who has insisted that the dip in Q1 GDP was temporary, and that the fundamentals for the U.K. economy could bounce back and move the central bank closer to an interest-rate increase. This morning’s retail figures indicate this could happen,” said Hamish Muress, currency analyst at OFX, in a note.

”This bounce for sterling contrasts with yesterday’s decline and shows how the currency is currently trading on the release of every piece of economic data as it tries to judge how the economy is performing,” he added.

Stock movers

Shares of Tate & Lyle PLC /zigman2/quotes/205109332/delayed UK:TATE -0.80%  rose 8.6% after the food ingredients maker said adjusted profit rose 13% in the last fiscal year.

Kingfisher PLC /zigman2/quotes/200571451/delayed UK:KGF -0.21%  rose 1.5% even after the do-it-yourself retailer said first-quarter sales fell due to bad weather.

Shares of Daily Mail & General Trust PLC /zigman2/quotes/206568132/delayed UK:DMGT +0.69% lost 9.7% after the newspaper publisher reported a drop in revenue in the first half of fiscal 2018.  

Mediclinic International PLC /zigman2/quotes/201361237/delayed UK:MDC +2.72%  lost 8.7% after the health care group said it swung to a full-year pretax loss due to one-time charges related to its Switzerland business and intangible assets.

United Utilities Group PLC  gave up 1.2% after reporting a 2.4% fall in fiscal 2018 pretax profit.

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Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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