FTSE 100 erases 2017 gains in election pound rally

(c) Sky News 2017: <a href="http://news.sky.com/story/ftse-100-erases-2017-gains-in-election-pound-rally-10843082">FTSE 100 erases 2017 gains in election pound rally </a>
 

The FTSE 100 closed below the level it started the year on Wednesday, bleeding more value as it tracked Tuesday's surge in the pound.

Sterling was trading just off six-month highs around $1.28, having nudged $1.29 after European stock markets closed for business on Tuesday in a session that saw the FTSE endure its biggest one day fall since last June, losing £46bn in its market value.

The losing streak continued on Wednesday, with the UK's premier share index closing 33 points or 0.5% down at 7,114. It began the year at 7,142 and had even hit a record high only a month ago.

Burberry weighed on Wednesday - losing 8% - amid market speculation that its recent sales growth, attributed to currency benefits, could fade if sterling's partial recovery persists.

The pound - which plunged in value in the wake of the UK's Brexit vote last year - gained three cents after Theresa May shocked markets by calling on MPs (BSE: MPSLTD.BO - news) to support the calling of a General Election on 8 June .

A stronger pound tends to hurt the value of many FTSE 100 companies because their overseas' earnings are worth less when they are converted to sterling.

It has gained strength on the back of market expectations of a stronger mandate for the Prime Minister from the British people, which could help smooth the looming EU divorce talks ahead.

Analysts also pointed to the rally being potentially overcooked as many bets on the pound falling in value were stopped.

Kathleen Brooks, research director at City Index, said: "For GBP/USD (pound versus dollar) $1.30 is now in view, and as we lead up to the election then we could see more unwinding of the GBP/USD short positions, which could take us to $1.35 around the time of the election result."

Commenting on why investors were seemingly turning their backs on stocks and ignoring the political noise, she saw a focus on international issues instead, as mining and energy stocks led the fallers in London.

She (Munich: SOQ.MU - news) said: "The FTSE 100 is sensitive to the drop in iron ore prices, which have hurt commodity companies, who make up a significant portion of the FTSE 100.

"Also, global stock indices have had a poor run of late; so overall market forces could also be weighing on the UK index."

Global stocks, including many on the FTSE 100, have lost ground in recent weeks largely on concerns that record values - driven by promises of massive infrastructure investment and tax cuts by President Trump - may be overdone.

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