London stocks finished lower against a backdrop of falling equities in the US and Europe, with a softer sterling helping limit some losses as investors continue to evaluate the new UK political landscape in the cold, hard light of day.
This was as Moody’s warned the impact of the UK’s hung parliament was “credit negative” and PM Theresa May made ready to this evening meet with Tory backbenchers angered by the election result.
The FTSE 100 ended down 0.21% to 7,511.87, and the FTSE 250 closed down 0.44% to 19,682.70. Sterling was weaker on the dollar and euro, while gold, silver and copper prices abated and those for crude oil improved.
In the US, the Dow Jones, S&P 500 and Nasdaq Composite were down, with Friday’s tech sell-off continuing and hurting Europe. The Euro Stoxx 50, Cac 40 and Dax were heavily down.
“The market has managed to pullback most of the losses it incurred in the morning session,” said David Madden, market analyst at CMC Markets UK.
Madden said the move had more to do with a weaker pound than a sudden change in optimism regarding the British economy.
He and other pundits reckoned the outcome to PM May’s snap ballot still hung over the market, and would likely continue to do so until clarity on the UK’s political future was available.
The Tories were due to meet the Democratic Unionist Party tomorrow to discuss the possibility of forming a minority government with the supply and confidence of the Northern Irish party.
Jasper Lawler, senior market analyst at London Capital Group, said a drop in the value of sterling and the relatively threadbare technology sector helped stabilise the FTSE 100.
“While there’s no sign of panic, political uncertainty created by the election left little room for any British company shares to shine,” he said.
A survey from the Institute of Directors added to the downbeat mood as it showed business confidence plunged in the wake of Thursday’s general election and subsequent hung parliament.
In addition, investors were digesting data from Visa which showed that UK consumer spending fell 0.8% in May, marking its first year-on-year drop since September 2013.
Meanwhile, most analysts commented on the overall bearish sentiment pervading the market, and in relation to Brexit where talk was centering on the potential for a so-called ‘soft’ Brexit.
Neil Wilson, senior market analyst at ETX Capital, said: “As Moody’s points out there is a chance of a softer Brexit but we must also think there is a heightened risk of a cliff-edge exit from the EU.”
Brexit talks were due to start next Monday, and it was understood MPs would be urging May to adopt a more pragmatic approach to the UK’s divorce proceedings with the EU.
On the corporate front, notable numbers of mining companies, utility stocks and financial outfits tended lower on the FTSE 100, with commercial property salient among a small group of blue-chip gainers.
Software and information technology business Micro Focus International was hurt by weakness in the US technology sector. Precious metals miner Fresnillo retreated as gold prices declined.
Rio Tinto was on the back foot after Glencore offered to buy its interest in Coal & Allied Industries for $2.55bn in cash plus a coal price-linked royalty.
Tesco was gaining ahead of its first-quarter trading statement on Friday, as Deutsche Bank said it expected a solid UK like-for-like and improving international trends.
Oil giants Shell and BP gushed higher as oil prices advanced, after out-of-favour Qatar affirmed it would continue with its share of Opec oil production cuts.