The FTSE 100 was lower on Wednesday as traders dumped the dollar and the strength in the pound hit London’s cohort of overseas earners.
Although many strategists have poured cold water on the ‘Sell America’ trade, moves in the foreign exchange markets overnight suggest there is some merit in the approach as confidence in the US president wanes.
London’s leading index was down 0.4% at the time of writing on Wednesday as its inverse relationship with the pound kicked in amid a sell-off of the dollar.
“The pound is now at levels not seen since September 2021, touching $1.37 before falling back slightly,” explained Susannah Streeter, Chief Investment Strategist, Wealth Club.
“The sharp moves in currencies, with sterling strengthening are acting as a dampener on the FTSE 100. It puts pressure on the overseas earnings of listed multinationals, with pharma giants GSK and AstraZeneca, chemicals company Croda, and fashion house Burberry among the fallers in early trade.”
GSK was the FTSE 100’s top faller, losing 2.6%, while AstraZeneca shed 2%. As two of the largest FTSE 100 constituents, the weakness here was more than enough to overshadow minor strength in precious metals miners and UK-centric retailers.
There were also losses for Experian, HSBC, and Airtel Africa – all of which have substantial overseas earnings.
The FTSE 100’s drop was at odds with a continuing rally for US equities, where stronger tech stocks helped the S&P 500 to within touching distance of 7,000.
A good session for US tech yesterday helped the Polar Capital Technology Trust 1.8% higher on Wednesday.
One would expect the rest of the European and US sessions to be choppy as investors prepare for the US interest rate decision later tonight. Rates are expected to be held.
A fresh record for gold helped Endeavour Mining to the top of the leaderboard once more, with gains of 3%. Fresnillo was slightly lower after releasing its Q4 production report. Silver production was higher quarter-on-quarter, but was lower than the same period a year ago. But the main story here is higher precious metals prices, and any fluctuations in production are a sideshow.
“Fresnillo can hardly be accused of exaggeration in its coy reference to a ‘supportive metals price environment’,” said Chris Beauchamp, Chief Market Analyst UK at IG.
“This is a modest way of referring to price surge not seen in over a decade, one that stands poised to deliver significant profit increases. Indeed, it was the sole reference to price in the entire update, which showed that the group’s production remains on track. While the shares stumbled yesterday, the price is still up by more than a fifth in January, with new record highs for both it and silver seemingly just a matter of time.”
British Land shares were flat after news of its offer for Life Science REIT broke. Given the depressed valuations of the UK-focused property sector, analysts are questioning whether it could be the next to enjoy a rerating.
“The big banks used to trade at discounts to net asset, or book, value per share and so did many of the leading London-listed gold miners. Their share prices have all rocketed, so it will be interesting to see if investors turn their attention to another sector where valuations look very depressed, namely real estate,” said AJ Bell investment director Russ Mould.
“Many of the leading names trade at discounts to book value and trade buyers are paying attention, as British Land’s cash-and-stock offer to take over Life Science REIT is the latest in a series of deals in the sector.”