FTSE hurting on Brexit headlines and subsequent sterling strength

• London’s top flight index, the FTSE 100 closed lower on Tuesday following mixed inputs from a stronger pound to positive tone for the UK  economy with respect to Brexit headlines.
• The FTSE 100 dropped 0.45% to 7,151.12 as sterling surged to its highest level against the euro since May 2017 and its highest against the dollar since September.

PM May said that if her Brexit deal is defeated in parliament next month, she will table two further votes for MPs to decide what to do next, raising prospects of an extension to Article 50. Should the UK government loses the vote on May’s Brexit deal on 12 March, May told the House of Commons there will then be a vote on 13 March to ask MPs if they want to leave the European Union without a deal.

While this might be seen as good news, especially for the pound, therewithin lies the irony for the index. While this might be great news for domestic businesses in the UK and economy as a whole, about 70% of the indexes components derive most of their earnings from overseas and thus revenues in FX means a stronger pound is financially problematic for those companies. On Tuesday, shares with translation risk in earnings were among the worst performers ranging from Europe-focused Vodafone to dollar dependent Experian, British American Tobacco and Imperial Brands.

Best and worst performers

The top three came in as Ocado Group (OCDO) 990.00p 11.71%, Taylor Wimpey (TW.) 172.00p 4.02% and Barclays (BARC) 165.14p 3.72% while the rost of the top flight index were Fresnillo (FRES) 896.60p -8.14%, International Consolidated Airlines Group SA (CDI) (IAG) 617.00p -4.34% and Croda International (CRDA) 4,879.00p -3.58%.

FTSE levels

The 7160/70 level was broken again and a low of 7091 leaves the technical measures in the bear’s favour as the prices wilt towards the key support line at 7070 (recent double bottom daily lows (made up of 38.2% Fibo of May 2018 highs to Dec 2018 lows and Feb/Mar 2018 and Feb 8th 2019 lows)).  Bulls need to get through the 200-D SMA at the round 7276 level, a moving average that was last tested and breached momentarily back in Sep 2018.