London’s stock benchmark posted its lowest finish in more than a year Thursday, as blue-chips were clipped by renewed concerns about a potential global trade war.
The pound jumped as the Bank of England signaled it is preparing to raise interest rates, but the gain didn’t stick.
How markets are moving
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0080% on Thursday hit an intraday high of $1.4217, but has since traded around $1.4104. That’s down from $1.4140 late Wednesday in New York. Also, sterling rose above €1.15 against the euro /zigman2/quotes/210561278/realtime/sampled GBPEUR -0.0272% for the first time since June 2017, but was recently at €1.1459.
Sterling has risen about 1.1% against the greenback so far this week, and by roughly 1% against the euro /zigman2/quotes/210561278/realtime/sampled GBPEUR -0.0272% .
What’s driving markets
Stocks world-wide were whacked Thursday as the U.S. government planned to announce new trade restraints against China renewed fears about a potential trade war that could dent global economic growth. After the closing bell in London, President Donald Trump announced new tariffs against the world’s second-biggest economy.
Meanwhile, the pound got a lift after the Bank of England, led by Gov. Mark Carney, signaled that it’s looking at a potential interest-rate hike as U.K. wage growth improves. Investors had been pricing in a potential hike in May. The BOE for now held the key rate at 0.5%, but the vote was 7-2 as policy makers Ian McCafferty and Michael Saunders wanted a rate increase of 25 basis points.
A stronger pound can hurt stocks on the FTSE 100, as about 75% of revenue for its multinational components is generated overseas.
Ahead of the BOE statement, data showed U.K. retail sales grew by 0.8% on month in February, twice the pace seen in a Wall Street Journal survey of analysts.
The pound had been moving higher against the dollar /zigman2/quotes/210598269/delayed DXY -0.42% since late Wednesday after the Fed signaled it’s still on track for three interest rate increases in 2018, disappointing investors hoping for four hikes after upbeat inflation and labor data. The U.S. central bank did raise its benchmark fed-funds rate as expected.
The Fed’s monetary policy tends to drive financial markets globally, as many companies do business in the word’s largest economy and it can lift borrowing rates for them.
What strategists are saying
“With traders fearful of levies sparking a trade war, they are exiting equities,” said David Madden, a CMC Markets UK analyst, in a note.
“It now looks increasingly likely we’ll see a rise to 0.75% at the [Bank of England’s] May meeting. Beyond that the outlook is less clear,” said Ben Brettell, senior economist at Hargreaves Lansdown, in a note.
Reckitt Benckiser Group PLC shares rallied 4.8% after the consumer goods company said it’s ending talks about its potential purchase of Pfizer Inc.’s /zigman2/quotes/202877789/composite PFE 0.00% consumer health-care business. Reckitt Benckiser said it was looking to buy just part of the business, but that goal couldn’t be met.
The move is seen as leaving GlaxoSmithKline PLC /zigman2/quotes/209463850/composite GSK -0.51% in prime position to buy the Pfizer assets. GSK shares were down 1.7%.
GKN PLC shares turned higher and were up 0.2%. The engineering company said it continues to view the £8.1 billion ($11.4 billion) hostile takeover offer from Melrose Industries PLC /zigman2/quotes/210306391/delayed UK:MRO +1.92% as entirely opportunistic. Its statement came after Melrose announced it had come to an agreement with GKN’s pension-scheme trustees.
Shares of Halma PLC /zigman2/quotes/204238281/delayed UK:HLMA +2.72% fell 2% after the safety, health and environmental tech company said foreign-exchange benefits have reversed and pretax profit for the full year will be in line with market forecasts.