By Barbara Kollmeyer
London stocks were set to close the month of May with modest gains, underperforming other indexes as the strong performance of the pound in recent weeks has weighed on the FTSE 100.
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.10% rose 0.4% to 7,046.43 on Friday, set to close the week with a gain of 0.3% and a roughly 1% gain for the month. That is against a gain of 2.6% for the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP -0.57% as May begins to wind down. The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.5261% fell 0.3% to $1.4160 against a strong dollar, but has gained 2.4% for the month.
A strong pound can work against the FTSE 100, as many listed multinational companies derive revenue from overseas, and currency strength makes their goods less competitive.
Sterling climbed on Thursday , after Bank of England voting member Gertjan Vlieghe said a rate rise could be appropriate soon after the first quarter of next year, when the central bank would have a clear view of the post-furlough unemployment and wage dynamics.
The pound hit as high as $1.42 on Thursday, though that level has proven tough to maintain. Still, a failure to hold that level “could be more indicative of the latest dollar selloff coming to an end than waning pound strength,” said Raffi Boyadjian, senior investment analyst at XM, in a note to clients.
London stocks are up 9% year to date, which is behind a 13% gain for the Stoxx Europe 600. However, the index has been catching up, as it is replete with banks, oils and miners, all recovery plays that have been in favor with investors.
“It has been five months of investors fluctuating between optimism over the recovery, concern over the state of the COVID-19 pandemic and fears the economy will overheat, resulting in rampant inflation,” said AJ Bell investment director Russ Mould, in a note to clients.
“A key feature has been a recovery in U.K. assets which, even before COVID struck, had been largely underperforming their main global counterparts since the Brexit vote in 2016,” Mould said.
“The drivers for the renewed interest in U.K. stocks have been the successful vaccine rollout and accompanying reopening of the economy, and some encouraging noises from the corporate world as firms have updated on their first-quarter trading,” he added.
For Friday, banks were again in focus, leading gains, with HSBC /zigman2/quotes/208272822/composite HSBC -0.84% , NatWest /zigman2/quotes/203233010/composite NWG -2.24% and Standard Chartered /zigman2/quotes/200125072/delayed UK:STAN -0.51% up 1.7% each.
Home builders climbed, with Barratt Development /zigman2/quotes/209812640/delayed UK:BDEV +1.10% , Taylor Wimpey /zigman2/quotes/208623755/delayed UK:TW +0.74% and Persimmon /zigman2/quotes/206444744/delayed UK:PSN +0.68% all rising more than 2%.