Brexit deal defeat knocks London's blue chip stocks as pound weighs
* FTSE 100 down 0.5 pct; midcaps up 0.3 pct
* Pearson falls 5.9 pct after FY forecast
* Bovis Homes provides some cheer to homebuilders
(Adds details, closing prices)
By Josephine Mason
LONDON, Jan 16 (Reuters) - Britain's blue chip stocks fell
on Wednesday as a stronger pound lured investors toward cheap
domestic companies and away from exporters after Prime Minister
Theresa May's heavy Brexit defeat, while weak results weighed on
The top share index ended down 0.5 percent at 6,862
points, lagging European peers as sterling hit its highest since
November, a day after British lawmakers overwhelmingly voted
against May's divorce deal with the European Union.
A loss had largely been priced in already, though its
magnitude - a margin of 230 - came as a surprise.
The prime minister's historic defeat was seen as reducing
the chance of a hard Brexit even as uncertainty ahead of a no
confidence vote in May's government on Wednesday evening kept
"Uncertainty continues to reign. This is the harsh reality
of progress during these unprecedented Brexit negotiations,"
said Richard Flax, Chief Investment Officer at Moneyfarm.
"We do still believe that the most likely outcome is that a
deal is done before the UK leaves the bloc - whether that’s on
29 March, or after an eleventh hour plea to delay the day
Britain leaves the EU, remains to be seen. But it's tough to
have too much conviction about that."
Investors shunned consumer staples, which earn a big portion
of their revenue abroad in foreign currency, with Unilever
and Diageo dragging on the index. Heavyweight
oil and gas stocks were down 1.5 percent.
The domestically focused midcaps, which make half of
their income at home, gained 0.3 percent. Ireland's top share
index, one of the barometers for Brexit sentiment,
advanced 1 percent.
Investors have started tentatively to cover bearish short
positions in banks, retailers and housebuilders, which are
considered most at risk from a weaker UK economy amid Brexit
"I do think positions are being built for the domestic part
of the market to become a bit more investible as the worst-case
scenario becomes less likely," said Emmanuel Cau, head of
European equity strategy at Barclays.
But it will take time before global investors return en
masse even with UK stocks trading at a big discount to euro-zone
and U.S. peers as investors digest a slew of headlines and data.
"People are still in wait and see mode and nobody wants to
take a strong view because things can evolve very quickly from
here," said Cau.
British inflation hit its lowest in nearly two years in
December as fuel prices fell, leaving the Bank of England under
no pressure to carry on raising interest rates as jitters over
Brexit dominate the economic outlook.
Opposition Labour Party finance policy chief John McDonnell
said that May could eventually get a deal through parliament if
she negotiated a compromise with Labour.
Housebuilders led the gainers, with Bovis Homes
providing additional cheer after it forecast
better-than-expected full year profits.
Taylor Wimpey topped the FTSE 100 leader board while
Persimmon, Barratt and Bovis were all at
two-month highs. Bunzl dropped 1 percent after Exane
BNP downgraded the supplies distributor.
In corporate moves, Pearson was the bottom of the
board, down 5.9 percent, after its full-year outlook. The
company's forecast for full-year profits was in line with
expectations, but pointed to weaker-than-expected revenues.
Liberum analysts said the guidance was possible only due to
a massive savings drive.
Investors shunned Reckitt Benckiser after it
announced its chairman was retiring after more than 30 years at
the firm. He is considered an architect of the company's push to
become a global consumer health products company. Its shares
fell 4.2 percent.
Among the small caps, floor covering distributor Headlam
fell 1.3 percent after warning on profits.
(Additional reporting by Danilo Masoni and Helen Reid
Editing by Mark Heinrich)
First Published: 2019-01-16 08:07:37
Updated 2019-01-16 19:05:44
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