Brexit and dollar batter London stock market

London / AFP

A sharp slowdown in British growth due to Brexit and a rebounding dollar teamed up to jolt London stocks on Wednesday. While London stock market rose modestly ahead of the presentation Britain’s first budget update since the Brexit vote, those gains disappeared after finance minister Philip Hammond told parliament Wednesday that gross domestic product was expected to grow by only 1.4 percent next year — sharply down from the prior estimate of 2.2 percent given in March.
James Hughes, chief market analyst at online broker GKFX, said the announcements were pretty much as expected, with the market reacting more to a spike in the dollar than the budget.
“The reaction of the market was pretty subdued as expected with the pound adding around 30 pips before falling on the back of better than expected US data,” said Hughes. In afternoon trading, the FTSE 100 was down 0.5 percent, while the pound dropped around half a US cent.
“Traders were waiting for mention of Brexit and what this could mean going forward, … however it didn’t come and quite rightly so” as Hammond had no data on which to produce credible forecasts on anything surrounding a post-Brexit Britain.
The spike in the value of the dollar also helped push the FTSE 100 into the red. Mining stocks had been the biggest gainers during morning trading, but a strong dollar depresses sales of dollar-denominated commodities, and they slumped.
The dollar shot higher following the release of data showing new orders for US manufactured durable goods rose by a sharp 4.8 in October, driven almost entirely by transportation equipment and far surpassing expectations. Meanwhile US unemployment claims remained at a relatively low level.
The euro lost more than half a cent in European trading, to stand at $1.0554 in afternoon trading.
The dollar spiked to a near 8-month high of 112.47 yen.

‘Mind boggling’
The dollar has been trading around 14-year heights as markets expect the US Federal Reserve to hike interest rates at their next meeting in December.
FXTM Research Analyst Lukman Otunuga said “speculation of a December rate hike reached mind boggling levels” with markets having “priced in a surreal 100 percent probability of the Federal Reserve taking action before year end”. The Fed is due later Wednesday to release minutes of its most recent policy meeting.
“With US interest rate increase almost a done deal next month, most may be paying attention to clues on interest rate timings for 2017,” said Otunga.