By Barbara Kollmeyer
Stocks in London climbed on Friday, after comments by Federal Reserve Chair Jerome Powell sent the dollar higher at the expense of the pound, and as crude prices surged.
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.52% climbed 0.8% to 6,708.28, for a weekly gain of 2.8%, which makes it an outperformer versus its European peers. The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.4208% was down 0.5% against the dollar, and is down around 0.8% for the week. Multinationals listed in London tend to benefit in these circumstances, as much of their revenue is earned overseas.
The ICE Dollar Index /zigman2/quotes/210598269/delayed DXY -0.17% was hovering at a three-month high near 92 on Friday. The dollar climbed as pressure stayed on bonds, with the yield on the U.S. 10-year government bond /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.47% last trading at 1.58%, hovering at its highest levels in a year. The dollar and yields rose following comments from Powell on Thursday.
“While Fed Chair Powell reiterated that the central bank wouldn’t be tightening policy anytime soon, he steered well clear of suggesting any form of intervention, dashing hopes that the Fed will step in to calm the bond market rout,” said Sophie Griffiths, market analyst at Oanda, in a note to clients.
The yield on the 10-year gilt /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y +3.76% also moved higher, last up 3 basis points to 0.768%.
Supporting the FTSE 100 were shares of banks, with HSBC /zigman2/quotes/208272822/composite HSBC +1.09% /zigman2/quotes/202090296/delayed UK:HUKX +0.42% and Barclays /zigman2/quotes/208409333/delayed UK:BARC +2.46% /zigman2/quotes/206581728/composite BCS +2.24% up 3% and Lloyds Banking Group /zigman2/quotes/202285510/delayed UK:LLOY +1.52% /zigman2/quotes/200709414/composite LYG +1.70% up 1%.
The oil sector also got a boost, as U.S. crude /zigman2/quotes/209723049/delayed CL00 -0.63% and Brent futures surged over 2%. That left shares of Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA -1.11% /zigman2/quotes/205095589/composite RDS.A -0.93% and BP /zigman2/quotes/207305210/composite BP -0.08% /zigman2/quotes/202286639/delayed UK:BP -0.18% with similar gains. U.S. prices posted their highest finish since 2019 on Thursday, after the Organization of the Petroleum Exporting Countries and its allies said they would rollover current production cuts to end-April.
Shares of London Stock Exchange /zigman2/quotes/206625606/delayed UK:LSEG -2.53% led decliners, sinking 12%. The exchange operator said 2020 pretax profit rose 5.2% on the back of higher revenue, and declared an increased dividend. Disappointment over results came as net profit was 5% below consensus on a heavier tax charge, noted Citi analyst Andrew Coombs.
The analyst downgraded shares to neutral, citing an “underwhelming conference call,” and concerns the company will have trouble reaching its targets.
“On a back-of-the-envelope basis the >30% EPS [earnings per share] accretion target in 2021 now looks very difficult to achieve and we may have to wait until 2026 to reach the desired 50% Ebitda [earnings before interest, taxes, depreciation, and amortization] margin target (ex recoveries),” Coombs added.