The FTSE 100 rose to a new record high on Tuesday, bolstered by a continuing slump in the value of the pound, as concerns mounted about the UK economy after the Brexit vote.
But the market could not sustain its initial rise and after touching the new peak of 7,129.83, it fell during the course of the afternoon as Wall Street opened sharply lower. The FTSE 100 closed at 7,070.88, down 26.62 points on the day, after US markets were undermined by poor third quarter figures from metals specialist Alcoa, which in turn sent mining shares lower.
Chris Beauchamp, chief market analyst at online trader IG, said: “A poor start to the session in the US caused the index to pull back ... from the highs of the session. The blame for the general ‘risk off’ mood can be attributed partly to Alcoa, whose disappointing figures have put US markets on the defensive, but overall the equity rally is being knocked by a rising US dollar, as traders rush back to the greenback thanks to soaring expectations of a move by the Fed in December.”
Earlier the index climbed about 30 points, or 0.4%, to 7,129.83 , beating the previous intraday high of 7,122 in April last year and well above its highest close of 7,103, achieved on the same day.
The driving force for the UK market’s recent surge has been the rapid decline in the pound, down 0.8% against the dollar at $1.22. Sterling has suffered its worst four-day period since the immediate aftermath of the vote to leave the EU on 23 June, even leaving aside the flash crash on Friday, after Theresa May suggested Britain would prioritise immigration control over single market access.
The FTSE 100 is dominated by companies that make substantial sales and profits abroad. Those profits rise when they are converted back into sterling. Exporters have also gained, as a fall in sterling makes their goods cheaper for foreign buyers and increases their profits.
Neil Wilson, a markets analyst at ETX Capital, said: “The index jumped as the pound took another leg lower on mounting concerns about what a ‘hard Brexit’ will look like. Leaked Treasury documents argue that the cost of Brexit could be £66bn per year, due to a slump in the pound of up to 9.5% compared with staying in the EU.
“Brexiters might point to the FTSE’s rise as a sign of strength, but this is very much a story of sterling weakness boosting foreign earnings, which account for about two-thirds to three-quarters of FTSE 100 company revenues.”
A recovery in housebuilding stocks, which were badly hit by uncertainty after the referendum, has helped support the market, after the retirement housebuilder McCarthy & Stone said business was getting back to normal.
The more domestic focused FTSE 250 ended 0.5% higher at 18,073.20, below its earlier high and more than 500 points short of its record high.
Concerns about the UK economic outlook have continued to pile pressure on companies dependent on British consumers and investment. Shares have also been in demand as investors seek a return on their cash, with record low interest rates and bond yields limiting their options.
