LONDON (AP) — Britain’s top stock market index, the FTSE 100, struck a record high on Tuesday amid hopes that many of its constituent companies will benefit from the pound’s slide in currency markets.

While the pound has tanked following the June vote to leave the European Union, most of the FTSE 100 stocks have surged. That inverse relationship was evident again on Tuesday: as the pound fell another 0.9 percent to $1.2250, the FTSE 100 rose 0.5 percent to its new peak of 7,129.83.

At first glance, the stock gains may appear perverse — after all, the fall in the value of the pound indicates that investors are less hopeful about the outlook for the British economy in light of the Brexit vote and the government’s apparent desire to break away from the EU’s single market.

But the drop in the pound, while a drag on consumers’ and businesses’ spending abroad, is potentially good for British firms that already have big business interests outside the U.K. And the money they make abroad will be worth more when it is brought back to the U.K.

There are many such international companies in the FTSE 100, from oil giants like BP and Shell to educational publishers like Pearson and fashion houses such as Burberry.

As the pound drops — it’s fallen around 20 percent since the June 23 vote to leave the European Union — exporters have seen their goods become more cost competitive in international marketplaces.

“Brexiters might point to the FTSE’s rise as a sign of strength but this is very much a story of (pound) weakness boosting foreign earnings, which account for around two-thirds to three-quarters of FTSE 100 company revenues,” said Neil Wilson, markets analyst at ETX Capital.

While the pound’s slide against the dollar has captured most of the headlines, especially last Friday when it plunged about 6 percent at one point to a new 31-year low of $1.1789, the currency is posting equally dramatic declines against the euro, which is used by 19 EU countries. One euro is now worth 0.90 pounds compared with around 0.76 pounds just prior to it becoming clear that Britain had voted for Brexit.

The irony of the pound’s dramatic fall is that it will help British businesses secure market share in the EU’s single market, of which Britain is still a member until at least 2019, by making their goods more competitive.

Having suffered an immediate slide in the wake of the Brexit vote, the pound settled for much of the rest of the summer. But that changed at the start of this month when the government of new Prime Minister Theresa May started to lay out its vision for Brexit.

May, who replaced David Cameron in July, said she will invoke by the end of March the Article 50 of the EU treaty, the move that will officially start two years of talks on Britain’s exit. She also signaled that her government would prioritize controls on immigration over access to the EU market that is so valuable to many British companies.

A report in The Times newspaper on Tuesday, citing leaked papers from the Treasury department, said a so-called “hard Brexit” could lead to government tax revenues collapsing by 66 billion pounds ($81 billion) a year and that the country’s GDP could be 9.5 percent smaller if Britain leaves the single market and operates under standard World Trade Organization rules.

The report helped put further pressure on the pound. Add the uncertainty related to the Brexit negotiations and the Bank of England’s policies, which could see interest rates cut further, and the outlook remains bleak for the pound.

If not necessarily for stock portfolios. </s> A further weakening of sterling helped push the FTSE 100 to a record high during trading on Tuesday.

The country's premier share index climbed above 7,123 points just after midday - beating its previous highest level recorded in April last year and going as high as 7,129 before slipping back.

It finished the day at 7,070, just shy of its highest recorded market close level of 7,103.

Shares in the firms that make up the index have soared this month in pound terms as the currency has sagged to fresh 31-year lows.

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The FTSE 100 consists largely of export-dominated multi-nationals which make the bulk of their sales in dollars - making the stocks of such firms more attractive when those sales are converted back to pounds.

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However, on dollar terms, the FTSE's market value remains well below its referendum result level - down more than 6%.

The new record for the FTSE was marked as sterling slid back below $1.23 - with more bloodshed for the currency seen likely in the wake of the so-called 'flash crash' last Friday amid a market frenzy over the UK's vote to leave the EU.

FTSE soars as pound plunges - why?

Neil Wilson, market 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 Brexit could be £66bn per year, due to a slump in GDP of up to 9.5% compared with staying in the EU."

The FTSE 250, which has benefited from evidence the UK will avoid recession more than currency weakness, is also hovering near record highs.

Analysts have said the collapse in sterling has made UK firms more attractive for potential overseas buyers. </s> Around 07:25 GMT, the pound struck $1.2757, the lowest level since 1985.

Sterling meanwhile traded at 87.56 pence to the euro - its weakest level since 2013.

The pound slumped to a 31-year low against the dollar on Tuesday on concerns over the timing of Britain's planned exit from the European Union, according to traders.

Britain's currency also struck a fresh three-year low point against the euro, while the drops helped pushed London's benchmark FTSE 100 stocks index up to a 16-month high beyond 7,000 points at the open.

Around 07:25 GMT, the pound struck $1.2757, the lowest level since 1985.

Sterling meanwhile traded at 87.56 pence to the euro - its weakest level since 2013.

"It seems that it is going to be hard to provide a tourniquet for sterling's recent wounds given the solidity of the newly announced Brexit timeline," said Connor Campbell, analyst at traders Spreadex.

"In terms of silver linings the pound's protracted demise has continued to lift the multinationals that make up the FTSE 100, leaving the index back above 7,000 for the first time in 16 months."

The FTSE rallied to a gain of 1.1 per cent at 7,060.46 points in early deals compared with Monday's close.

In the eurozone, Frankfurt's DAX 30 stocks index won 0.6 percent to 10,577.94 points compared with Friday's close. The DAX was shut Monday owing to a public holiday in Germany.

The Paris CAC 40 meanwhile opened Tuesday with a gain of 0.7 per cent at 4,485.41.

British Prime Minister Theresa May announced at the weekend that her government would start the process of leaving the EU within the next six months - possibly leading to Britain severing ties with the single market. </s> The FTSE 100 has hit a record high as the pound tumbled further on Brexit jitters.

The UK’s top-flight index reached 7,129.83 points in mid-session trading – beating its previous record intraday high of 7,122.74, set in April 2015.

Shares have been surging higher while sterling has taken a battering since the Brexit vote, as many of the listed multinational companies benefit from earnings in stronger foreign currencies.

Against the US dollar, sterling dropped more than 0.8 per cent to trade as low as $1.225 today. The pound also fell against the euro, down about 0.3 per cent to €1.106.

READ MORE: Pound falls to fresh 31-year low in ‘flash crash’

Since the Brexit vote on 23 June, the FTSE 100 has made a healthy recovery, jumping about 12.5 per cent, while sterling has slumped more than 18 per cent against the US dollar over the same period.

Sterling ducked even lower today after leaked government papers laid bare the cost of leaving the EU. Switching to World Trade Organisation rules would cause gross domestic product to fall by up to 9.5 per cent and cost the Treasury up to £66 billion a year, compared with if the country remained in the EU.

Connor Campbell, a financial analyst at SpreadEx, said the news has “thrown more fuel on the fearful fire…leaving the markets to deal with another day of sterling dread”.

He added: “With that in mind, the pound, of course, has woken up wheezing and spluttering, continuing to shed an amount of blood that is apt for a month ending with Halloween.”

Click here to ‘Like’ The Scotsman Business on Facebook </s> Image copyright Getty Images

The FTSE 100 share index came close to an all-time high after rising above 7,000 points as the pound plunged to a new 31-year low against the dollar.

London's leading share index closed up 1.3% at 7,074.34 - just short of its record high of 7,103.98.

However, the pound fell to $1.2737 at one point - its lowest level against the US dollar since 1985.

Sterling has fallen for the past two days as traders study the Conservative Party conference for Brexit details.

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Against the euro, the pound was down 0.7% at €1.13840.

The FTSE 250 share index, which features more UK-focused companies, closed at a record high, surging 0.9% to 18,342.07.

Stock markets in Frankfurt and Paris also closed higher on Tuesday.

Overseas profits

The FTSE 100 has benefitted from the fall in the pound since the Leave vote because the many international companies whose shares are traded in the UK tend to benefit from it.

Profits earned abroad by multinationals such as drugs giant GlaxoSmithKline and major mining companies are worth more when converted into sterling.

That makes a company's shares appear better value when compared with the higher profits it will make, prompting a revaluation of the stock.

The FTSE 250 index, however, has lagged behind the FTSE 100 since the Brexit vote because gains from the weaker pound for the outward-looking businesses have been offset by fears about the fortunes of UK-focused companies.

The FTSE 250 contains a higher percentage of UK-facing businesses than the 100. Since June though, a string of better-than-expected economic news has also helped to lift their share prices.

On Tuesday, a closely watched survey suggested that the UK's construction sector had unexpectedly returned to growth in September.

The latest Purchasing Managers' Index for the construction sector rose to 52.3 from 49.2 in August. Any figure above 50 indicates expansion.

"Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum," said Tim Moore, senior economist at IHS Markit, which compiles the survey.

Sterling 'wounds'

On Sunday, Prime Minister Theresa May said she would trigger Article 50 by the end of March 2017.

Analysts say the pound has been hit by the prospect of the UK leaving the EU single market as part of the Brexit process.

Esther Reichelt, currency strategist at Commerzbank, said the government's apparent insistence on limiting freedom of movement was causing particular uncertainty among investors.

"This increases fears of a 'hard' Brexit because so far nobody sees a possibility of achieving this without May having to accept notable restrictions when it comes to accessing the single market," she said.

Connor Campbell, analyst at traders Spreadex, said: "It seems that it is going to be hard to provide a tourniquet for sterling's recent wounds given the solidity of the newly announced Brexit timeline."

Kathleen Brooks, research director at Forex.com and City Index, said the Tory party conference was turning into a sell for the pound given Mrs May's "apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit".

She said comments by the Chancellor, Philip Hammond, in which he warned that the UK economy was heading for a "rollercoaster" ride over the coming years, had not helped. </s> The pound slumped to a 31-year low against the dollar Tuesday on concerns over the timing and terms of Britain’s planned exit from the European Union, traders said.

Britain’s currency also struck a fresh three-year low point against the euro, while the drops helped pushed London’s benchmark FTSE 100 stocks index up to a 16-month high beyond 7,000 points at the open.

While the British economy has showed signs of improvement in the months since the shock vote to leave the EU, there are concerns about the wider long-term impact of the bloc losing its second-biggest economy.

British Prime Minister Theresa May announced at the weekend that her government would start the process of leaving the EU within the next six months — possibly leading to Britain severing ties with the single market.

The pound on Tuesday struck $1.2740 — its lowest level since 1985.

Sterling meanwhile traded at 87.66 pence to the euro — the weakest level since 2013.

“It seems that it is going to be hard to provide a tourniquet for sterling’s recent wounds given the solidity of the newly announced Brexit timeline,” said Connor Campbell, analyst at traders Spreadex.

“In terms of silver linings, the pound’s protracted demise has continued to lift the multinationals that make up the FTSE 100, leaving the index back above 7,000 for the first time in 16 months.”

The FTSE rallied to a gain of 1.6 percent in morning deals, compared with Monday’s close.

“The reality is the biggest stocks in the index dominate its performance, and the likes of HSBC, Royal Dutch Shell, and British American Tobacco all have international earnings which are now worth more in pounds and pence thanks to sterling’s decline,” said Laith Khalaf, senior analyst at stockbrokers Hargreaves Lansdown.

In the eurozone, Frankfurt’s DAX 30 stocks index won 0.7 percent compared with Friday’s finish. The DAX was shut Monday owing to a public holiday in Germany.

Elsewhere Tuesday, Asian stock markets rose with Japanese stocks boosted by a weaker yen.

The dollar won support from a rebound for US manufacturing, which helped turn attention back to US monetary policy, days ahead of the release of a closely watched jobs report.

Traders took the data as a sign that the world’s top economy is getting back on track and would be able to withstand an increase in borrowing costs.

The Fed had considered a rate hike last month but held off, saying it wanted to see more evidence of strength.

“Traders are seeing a number of reasons to be a little cautious this week,” said Oanda analyst Craig Erlam.

“One of the obvious reasons for this is that we will get the US jobs report on Friday which often weighs on risk appetite.”

Pound/dollar: DOWN at $1.2749 from $1.2841 Monday

Euro/pound: UP at 87.61 pence from 87.30 pence

Euro/dollar: DOWN at $1.1167 from $1.1211

Dollar/yen: UP at 102.34 yen from 101.63 yen

New York – DOW: DOWN 0.3 percent to 18,253.85 (close) </s> The pound fought back after a torrid week, amid relief over Prime Minister Theresa May’s plans to allow a Commons vote on her Brexit strategy.

Sterling bounced back against most major currencies, up a cent to $1.22 and a cent higher at €1.11, having been hammered in recent sessions on Brexit fears and suffering a dramatic hit in last Friday’s flash crash.

The relief rally comes as the UK government looks set to back a Labour call for parliament to be able to “properly scrutinise” May’s Brexit plans before the formal EU exit process begins.

READ MORE: FTSE 100 hits record high as pound continues to fall

Kathleen Brooks, research director at City Index, said: “If parliament can debate the plans, then the Prime Minister may have to soften her approach to negotiations, which could remove some of the market fears about the negative economic impact of Brexit.”

But City experts warned there may still be further falls for the battered pound.

Neil Wilson, markets analyst at ETX Capital, said: “This relief rally looks like a dead cat bounce. It could just be a short pause before sterling takes another leg lower towards $1.20.”

In equity markets, the FTSE 100 Index slipped back after hitting a new intraday record of 7,129.83 yesterday.

The top tier’s performance is closely linked to the pound, with sterling’s gains sending it lower as many of the firms listed on the FTSE 100 make their earnings overseas and benefit from a weak pound.

The London market was also dragged lower after Wall Street closed down 1 per cent overnight and following equity falls across Asia.

Brooks said the pound was set to remain under pressure, with Brexit negotiations just one of many factors pushing sterling lower.

She added: “There are many barriers to a pound recovery, including low interest rates from the Bank of England and strength in other currencies, such as the yen and the US dollar, where interest rates could rise in December.”

Click here to ‘Like’ The Scotsman Business on Facebook </s> LONDON, Nov 16 — British shares suffered and sterling tumbled yesterday as the growing risk of a disorderly divorce from the European Union spooked investors, with leading index the FTSE 100 moving for most of the day in rare lockstep with the domestic currency.

The FTSE 100 eventually ended broadly flat, reversing the session's earlier 0.8 per cent fall, which came even as sterling dived after high-profile resignations thrust Prime Minister Theresa May's government into turmoil, just a day after she clinched a draft Brexit deal.

The FTSE 100, which makes 70 per cent of its income overseas, is normally boosted by a weaker pound, but losses in companies more exposed to the domestic economy, such as banks and housebuilders, almost offset gains in the big exporters. It ended up just 0.06 per cent.

The more domestically-exposed FTSE 250 fell 1.3 per cent, while the neighbouring Irish bourse fell 3.9 per cent, its worst daily performance since the Brexit referendum more than two years ago.

“It feels a bit like 24 June 2016, to a smaller degree, as anything that's a pure play on the UK economy is getting smashed today,” said David Keir, co-manager of the TB Saracen Global Income and Growth Fund in Edinburgh, referring to the day after Britain's vote on leaving the EU.

"People are fearful that this will lead to a hard Brexit and a general election which at the moment would lead to a Jeremy Corbyn (Labour) government, which would not be good for sterling or UK stocks," he added.

According to a Reuters analysis of data, the FTSE 100 and sterling have moved in tandem so far this week, the first time since September 29, underscoring deepening worries about the fall-out across Britain's financial markets and economy from the tumultuous negotiations for a Brexit deal.

The resignations of Brexit minister Dominic Raab and work and pensions minister Esther McVey in protest at May's draft deal for leaving the European Union pushed sterling down as much as 1.9 per cent against the US dollar.

Traders said uncertainty had increased, with possible scenarios now including a second referendum, a general election or a hard Brexit.

“There is a high risk that parliament fails to pass the withdrawal deal in December,” said David Page, senior economist for the UK and US at AXA Investment Managers.

“Uncertainty over the coming months is going to be high and the prospect of a disorderly exit in March is rising,” he added.

Shares in state-owned lender Royal Bank of Scotland sank 9.3 per cent, suffering their worst one-day loss since the June 2016 post-Brexit vote selloff, as shareholders priced in a higher risk of a general election.

The Labour party has pledged in its manifesto to break up the lender. The fall in its share price wiped 2.85 billion off the bank's market value.

Lloyds and Barclays fell 5 and 4.1 per cent respectively, also knocked by the heightened political uncertainty. HSBC, which has a big international presence, rose 2.1 per cent.

Housebuilders Persimmon, Taylor Wimpey and Berkeley Group fell between 6 and 7 per cent in their worst daily performance since the Brexit referendum. Barratt also lost more than 7 per cent. The four stocks shed a combined market cap of £1.6 billion (RM8.77 billion).

Some investors said the decline made the stocks look attractively cheap.

“Housebuilders are pricing in quite a lot of downside. The yield you can get probably pays back the share price within a matter of five years,” said Sue Noffke, UK equities fund manager at Schroders.

“You would have to see quite significant falls in both volumes and prices to undermine the valuation case.”

Retailers were also hit, with Marks & Spencer down 4.8 per cent and Next down 4.1 per cent.

Royal Mail shares made a U-turn from their positive open, trading down 6.5 per cent after first-half profit dropped about 25 per cent as costs weighed.

Shares in contractor Capita sank 14 per cent after the Financial Times reported it is in danger of losing a British public health service (NHS) contract after failing to send letters with cervical screening dates or test results.

A source later told Reuters that the contract, which it said is currently loss-making, was not being withdrawn.

Asset manager Intermediate Capital Group was a rare gainer on the mid-caps index, up 2.9 per cent after its results showed a 17 per cent increase in first-half assets thanks to strong inflows of new money from clients.

The FTSE 100's multinational exporters Unilever, Diageo, Reckitt Benckiser, and GSK were up by 0.7 to 2.7 per cent, boosted by the weaker pound.

Stronger mining stocks also helped limit losses, with Randgold Resources, Rio Tinto, Glencore, and BHP Billiton rising 2.1 to 4.8 per cent on hopes of a rapprochement between the US and China on trade. — Reuters </s> The pound endured another day of pressure from investors on Tuesday after continued jitters on the foreign exchange markets pushed it down more than two cents to $1.21. 



Sterling recorded its worst four-day performance since the Brexit vote as a Bank of England official said he expected the pound to fall further in the coming weeks, driven by the referendum result and the UK’s trade deficit with the rest of the world.

The exchange rate with the US dollar stood at $1.30 last week when Theresa May opened the Conservative party conference and appeared to put regaining control of immigration above staying inside the EU’s single market free trade area. Investors took fright at the prospect of a hard Brexit and the currency has declined more than 6% against the dollar since then.

A flash crash last Thursday, when the pound fell by 6% in 10 minutes, heightened concerns that investors had lost faith in sterling as a major currency. A year ago a pound bought $1.55.



However, the pound’s decline had the opposite effect on the UK’s leading share index. The FTSE 100 touched a new intra-day record of 7,129.83 during afternoon trading, although it closed nearly 60 points lower after a late bout of selling, below the record closing figure of 7,104 reached last year. The driving force for the UK market’s recent surge has been the rapid decline in the pound, which has boosted the value of companies that earn much of their revenues in dollars.

Michael Saunders, a former investment banker who joined the monetary policy committee (MPC) in August, said Britain’s large current account deficit was adding to the anxiety about the ability of the nation to pay its way once it quits the European Union.

Saunders said the current account, which measures the balance of trade, cash transfers and investment income with other countries, was already undermining confidence in the UK’s ability to pay its way before the EU referendum.

Speaking to MPs on the treasury select committee, Saunders warned it was now a major issue and compounding the already weak sentiment on currency markets towards sterling.

“Given the scale and persistence of the UK’s current account deficit, I would not be surprised if sterling falls further, but I am fairly agnostic as to whether any further depreciation is likely,” Saunders told MPs on the treasury select committee.



Saunders, who joined the MPC from the US investment bank Citi, where he was chief economist, said investors were weighing up the implications of Britain leaving the EU.



“The work done by the International Monetary Fund and the OECD suggests that the long-run effects of the UK’s exit from the EU is that growth will be lower. If all we are doing is adjusting to a new equilibrium, that is not a concern,” he said.

Only if the pound plummets or triggers falls in other markets would the Bank of England need to consider cutting rates to bolster confidence and growth, he added.

“If such a scenario were to materialise then, provided inflation expectations and pay growth remain well contained, I would expect the MPC to largely look through any such direct effects on inflation of sterling weakness, even if they extend for several years.”

But the lower pound, which reduces the cost of UK goods and services sold abroad, could boost exports and offset much of the anxiety caused by the Brexit vote.

A fall in imports would also help to reduce the current account deficit, he said, adding that the government could take advantage of the current depressed situation to boost growth with extra spending.

Several Tory MPs, including supporters of the leave campaign, have warned that leaving the single market will harm the economy and have demanded ministers make every effort to negotiate continued access.



But the hardline taken by Downing Street and an equally robust response from European leaders, who have emphasised the free movement of labour as a pillar of the single market, have heightened concerns in the City that Britain will eventually leave all the EU’s major institutions.

Kathleen Brooks, research director at financial betting firm City Index and Forex.com, says traders fear the UK could be dragged back by Brexit uncertainty.

She told BBC News that: “The weakness in the pound is really a sign that investors don’t have confidence in a post-Brexit UK economic outlook. They think Brexit is going to be very negative for the UK economy, and UK GDP could contract going forward.”
Following the Brexit vote and the subsequent drop in the exchange rate of the British pound to U.S. dollar, the FTSE 100 Index reaches an all-time intra-day high of 7,129.