Sterling Recovery Undermines FTSE 100, Brexit In Focus

European equity markets were generally on the defensive, which countered the impact of higher oil prices, although the main impetus for a decline in UK stocks came from significant Sterling gains.

US equities, outside the oil sector, dipped lower on Wednesday, which contributed to a hesitant London start with the index little changed.

Oil prices continued to have a significant impact on the FTSE index as oil prices extended the sharp gains seen on Wednesday and had a positive impact on the UK market.

The UK PMI manufacturing data was weaker than expected at 53.4 from 54.2, which dampened optimism surrounding the industrial sector as orders and output lost impetus. A further sharp increase in costs raised fears surrounding margins, which tended to drag down the consumer goods sector.

During the European session, there were comments from EuroGroup Head Djisselbloem that the EU might be able to find a way for the UK to access the single market. The comments increased speculation that the UK might be able to avoid a ‘hard’ exit which underpinned confidence. There were also some suggestions from Brexit Minister Davies that the UK could contribute to the EU in return for market access.

There was, however, also a sharp strengthening in Sterling following the comments as the UK extended gains seen earlier in the session. Currency gains had a negative impact on the index given the heavy international weighting and the FTSE index moved sharply lower with a trough around 6,690.

US jobless claims were higher than expected at 268,000 in the latest week from 251,000 previously and the highest reading for close to 4 months. The ISM manufacturing index was higher than expected at 53.2 for November from 51.9 previously, which suggested solid underlying demand in the industrial sector.

US yields continued to move higher with 10-year rates moving to near 2.45% and there was a further impact on European yields with the rise in gilt yields tending to undermine equities.

US equities were also slightly lower on the day, although losses were limited with the UK index gaining fresh support in the final 90 minutes of trade as Sterling retreated from its best levels.

At the close, the FTSE index declined 30.86 points and 0.45% at 6,752.93.

There will be further volatility surrounding the US employment report on Friday with Sterling trends also important for overall market direction.

FTSE 100 Daily Chart

ftse01-12-16

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Tim Clayton

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.

Indices

NamePrice($)CommentChange($)Change %
S&P 5002,192+0.87+0.04%
NASDAQ5,256+4.55+0.09%
NYSE10,839+9.59+0.09%
FTSE 1006,730.72-22.21-0.33%
DAX10,513.35-20.70-0.20%
CAC 404,528.82-31.79-0.70%
EURONEXT 100872.00-5.61-0.64%
Nikkei 22518,426.08-87.04-0.47%
HANG SENG INDEX22,564.82-313.41-1.37%

Commodities

NamePrice($)Change($)Change %Comment
Light Sweet Crude Oil Futures,D47.48-0.01-0.02%
Gold Dec 161,175.70+8.80+0.75%
Silver Dec 1616.75+0.32+1.94%
Copper Dec 162.62-0.01-0.36%