FTSE Collapses On GBP Rise And US Bond Selloff

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FTSE Markets Suffer Amid GBP Rises And US Bond Selloff

In early October, the FTSE 100 closed at 7318 points – which is 99.8 points down. To put that number in context, that’s a decline of 1.15% across the index. The FTSE 250 also suffered a dip of 170 points, closing at 19,918 points.

The decline has since continued, with the Footsie hovering just above the psychological 7000 barrier.

What Rattled The FTSE?

The value of UK blue-chip and mid-tier stocks seems to have taken a significant hit. But why has this happened? The value of the FTSE has lowered more than most other European and US indices. To explain this phenomenon, we have to look at a number of factors.

Firstly, the Great British pound has increased in value. It’s up 0.62% against the euro and 0.57% against the US dollar.

Because FTSE stocks are traded on the world market but measured in pounds and pennies, a global increase in the value of the pound causes a decrease in the monetary valuation of each stock.

Even if a stock or share is still strong, it will obviously be worth fewer pounds after an increase in the value of that currency.

It’s also worth noting that, even though the rise of the pound may be bad news for shareholders with FTSE stocks and shares in their portfolios, it’s great news for speculators who are holding UK currency.

Copper

Unfortunately, the rise of the pound isn’t the only reason for the decline in FTSE stocks and shares.

The real value of these stocks and shares has also dropped. One reason for this is the sudden decline in copper prices, which has had a strong, negative impact on the shares of UK mining companies and related industries.

For example, the UK’s leading copper company, ‘Antofagasta’ dropped by an alarming 5.44% to 827p per share.

US Inflation

Meanwhile, inflation in the United States has caused economic uncertainty and led to the selloff of many US bonds.

These selloffs may not seem to directly affect the FTSE, but this kind of major economic activity always has a global knock-on impact.

In fact, the senior market analyst at City Index, Fiona Cincotta, has stated that “the FTSE is looking as if it could revisit the dip in mid-September if the current selloffs continue”. The FTSE might take another hit next month if the sale of US bonds isn’t curtailed.

Take Action?

As an investor and prospective shareholder, you may be wondering whether you should take advantage of the dip to buy FTSE stocks while they’re cheap.

With Brexit muddying the waters of many UK businesses, it might be to earlier to ‘buy on the dip’. Further volatility is almost certain up until the November deadline of EU negotiations. Volatility is no bad thing for short term traders, and binaries in particular, but tread carefully.

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London Markets

FTSE 100 erases 2020 gain as U.S. bond selloff spooks investors

Sara Sjolin

Pound briefly dips below $1.40

Ryanair shares are lower after the budget airline came to a representation agreement with a pilots union.

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U.K. stocks dropped for the first time in three days on Tuesday, tracking an equity selloff in the U.S. and Asia that came as investors got nervous about a rally in U.S. bond yields.

What are markets doing?

The FTSE 100 index UKX, +2.90% dropped 1.1% to end at 7,587.98, its lowest close since Dec. 20, according to FactSet data.

The pound GBPUSD, +0.67% rose to $1.4120 from $1.4075 late Monday in New York. The pound rebounded after briefly falling below $1.40 earlier in the session on concerns about the Brexit negotiations.

What is driving the market?

The losses in London came as part of a global selloff, in which the Dow Jones Industrial Average DJIA, +1.47% fell more than 300 points on Tuesday, as investors continued to fret about a rally in bond yields. Higher returns on debt securities typically make stocks and other assets perceived as risky less attractive to investors.

The yield on 10-year U.S. Treasury notes TMUBMUSD10Y, 0.729% rose to its highest level since April 2020 on Monday and continued higher on Tuesday to 2.71%. In the U.K., 10-year benchmark yields TMBMKGB-10Y, 0.305% also rose on Monday, and were marginally higher at 1.461% on Monday.

What are strategists saying?

“The rise in the yield available from government bonds has not happened overnight but it has finally started to draw investors’ attention in a classic case of ‘boiling frog’ syndrome: the water has been getting slowly hotter (bond yields going slowly higher), with the frog (or in this case investors) barely noticing at first, but the heat is now reaching a level whereby the first signs of discomfort are perhaps becoming evident,” said Russ Mould, investment director at AJ Bell, in a note.

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“Bond prices may be going down and bond yields higher either because markets are pricing in higher global growth and inflation, with low unemployment and higher oil playing a role here, or they are accepting that central banks are starting to tighten policy, or a combination of the two,” he added.

What else is new?

Brexit was back in the headlines on Tuesday, after a BuzzFeed report that a leaked document on the government’s analysis of the European Union divorce shows the U.K. will be significantly worse off outside the EU, regardless of what deal is struck.

At the time of the European market close, Bank of England Governor Mark Carney was being quizzed by the House of Lords Economic Affairs Committee, whose questioning included the BOE’s Brexit forecasts.

Which stocks are in focus?

Banks were among the biggest losers on Tuesday after the Financial Conduct Authority urged U.K. lenders to check up on customers with interest-only mortgages. The FCA said it is concerned that shortfalls in repayment plans could lead to people losing their homes. Shares of Standard Chartered PLC STAN, +3.15% fell 2.9%, Barclays PLC BARC, +5.32% BCS, +7.00% dropped 2.8% and Royal Bank of Scotland Group PLC RBS, +6.24% RBS, +7.11% gave up 2.7%.

Shares of Anglo American PLC AAL, +2.43% fell 2.3% even as its majority-owned De Beers Group said diamond sales jumped in the first sales cycle of 2020.

In Ireland, shares of Ryanair Holdings PLC RY4C, -1.37% fell 2.2% after the discount airline and the British Airline Pilots’ Association said they have struck an agreement for the representation of cockpit crew. The deal is seen as a major breakthrough in Ryanair’s talks with labor groups.

UBM PLC UK:UBM rose 4.3% on news of a 3.9 billion-pound ($5.47 billion) takeover offer from Informa PLC INF, +2.91% . Informa shares rose 0.9%.

FTSE 100: Top 20 risers

FTSE 100 delayed by at least 15 minutes | Preferences

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