U.K. stocks struggled for direction on Tuesday as traders were still absorbing Monday’s political turmoil that was seen as raising the chances of a new general election and potentially muddling the Brexit negotiations.
A raft of British economic data was also in focus, including the first monthly release on gross domestic product growth.
What are markets doing?
The FTSE 100 index UKX, +0.30% rose 0.1% to 7,698.40, setting it on track for its highest close since June 14. The gain adds to a 0.9% rally from Monday, when the pound tumbled on news Foreign Secretary Boris Johnson resigned over disagreement with Prime Minister Theresa May’s stance on Brexit. A weaker pound can boost the FTSE 100, as many of the index’s multinational companies generate most of their sales in other currencies.
Sterling GBPUSD, -0.1810% struggled to recover on Tuesday, changing hands around$1.3258 — the same level it traded around late Monday in New York.
What is driving the market?
Traders continued to watch the political landscape in the U.K. after a pair of high-profile resignations on Monday — Johnson and Brexit minister David Davis. The moves were seen as making it more likely that Prime Minister Theresa May could face a leadership challenge and send U.K. voters to the polls at a crucial time in the Brexit negotiations with Brussels.
A general election in 2018 looked more likely after the resignations, with Betfair’s odds now implying a 40% probability of a vote this year compared with 17% before the weekend.
Analysts also pointed out that the government crisis could make a “no-deal” Brexit outcome more likely and send Britain out of the EU without an agreement on trade.
What are strategists saying?
“For the moment, peering into the future in Westminster is no easier than it is in the arena of the financial markets,” said Russ Mould, investment director at AJ Bell in a note. “As such, the best thing investors can do is sit tight and not be diverted from their long-term plan and portfolio allocation — if nothing else this will avoid incurring unnecessary dealing costs, taxes and commissions.”
A slew of economic data hit the markets in morning trade. For the first time ever, the Office for National Statistics released a monthly GDP figure instead of its usual quarterly numbers. The report showed the U.K. economy expanded 0.2% in the three months to May, up from flat growth in the three months to April.
The trade deficit in the U.K. widened by £5 billion to £8.3 billion in the three months to May as car exports fell.
Production fell by 0.4% in May, missing an estimate of a 0.6% rise.
Manufacturing output rose 0.4% in May, coming in short of a 0.7% forecast.
Shares of Ocado Group PLC OCDO, +6.43% fell 3.4% after the online grocer said it swung to a pretax loss in the first half of fiscal 2018.
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Tesco PLC TSCO, -1.08% TSCDY, +0.19% dropped 1.1% after the U.K. supermarkets giant said its chief executive of Tesco U.K. & Republic of Ireland Charles Wilson will step down from the board due to health reasons.
Shire PLC SHP, +0.90% SHPG, +0.46% gained 0.8% after the U.S. Federal Trade Commission gave the green light for Takeda Pharmaceutical Co. Ltd.’sTKPYY, +0.07% proposed $62 billion takeover of the U.K. drugmaker.
Outside the FTSE 100 index, shares of TP ICAP PLC TCAP, -35.65% sank 32% after the interdealer broker issued a profit warning for 2018 and said Chief Executive John Phizackerley has stepped down with immediate effect…