By Barbara Kollmeyer, MarketWatch
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The pound climbed on Friday, closing out a month that is set to deliver sharp gains for the U.K. currency but the rally did no favors for the broader stock market.
Sterling /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.2838% climbed 0.4% to $1.3144, and was up nearly 6% for the month of July. That advance comes as the ICE U.S. dollar index /zigman2/quotes/210598269/delayed DXY -0.14% faced a more than 4% drop in the month. The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.15% struggling against the pound’s gains, fell 1.1% to 5,918.16, and was facing a one-month loss of 4%.
“European stocks have been held back to some degree by a stronger euro and pound. With large proportions of profits for the European companies made in dollars and other foreign currencies, a rising exchange rate means once profits are converted back into euros or sterling, they are worth less,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a note to clients.
That holds true for the U.K., where many major companies are earning overseas. And while the dollar has fallen sharply in recent months, due to investor appetite for riskier assets such as stocks and a dovish Federal Reserve, Razaqzada said the euro could come back under pressure as the virus has made a comeback in parts of Europe. That could also end up hurting the pound.
Fears of a second wave of the virus were rising in the U.K. after the government imposed fresh lockdown restrictions on northern swaths of England late on Thursday. A surge of coronavirus cases due to people not adhering to social distancing rules was to blame for new restrictions, said health secretary Matt Hancock. Spain and Belgium are also battling outbreaks.
Losses picked up in London as major heavily weighted energy companies came under pressure. Shares of Royal Dutch Shell PLC /zigman2/quotes/205095589/composite RDS.A +0.57% /zigman2/quotes/207682964/composite RDS.B +0.73% dropped 1.6% and BP PLC /zigman2/quotes/207305210/composite BP +0.73% /zigman2/quotes/202286639/delayed UK:BP +0.56% fell 2.8%.
Shares of International Consolidated Airlines Group /zigman2/quotes/208070069/delayed UK:IAG -3.67% slid over 7% after the owner of British Airways and other airlines swung to a loss of €4.21 billion and announced plans to raise €2.75 billion in a capital raise to boost the struggling company’s balance sheet. IAG also said it was discussing a potential restructuring of the Air Europa acquisition with Globalia to take into account the effect of the pandemic.
“A cash injection will give the British Airways owner short-term breathing space, yet the pace of the airline sector recovery is out of its hands. It is dependent on the course of coronavirus and government decisions on travel restrictions, quarantines and lockdowns in case of new flare-ups,” said Russ Mould, investment director at AJ Bell, in a note to clients.
“You also need to consider whether there will be an appetite to travel once the crisis eases,” he said.
Shares of BT Group /zigman2/quotes/209006687/delayed UK:BT.A +2.78% tumbled over 4%, after the telecom said on Friday that revenue and adjusted earnings for the first quarter of fiscal 2021 both fell but by less than expected. Still, the group expects full-year revenue to fall between 5% and 6%.
British American Tobacco /zigman2/quotes/209116881/delayed UK:BATS -0.37% reported a first-half profit rise despite a fall in volume. The cigarette maker’s Kentucky BioProcessing division has applied and is awaiting U.S. Food and Drug Administration approval to start a trial of its COVID-19 vaccine, Kingsley Wheaton, the company’s chief marketing officer, told MarketWatch in an interview. Shares slipped 0.3%.