10-3-17 12:27 PM EDT | Email Article

By Sara Sjolin and Victor Reklaitis, MarketWatch

Pound declines after disappointing construction PMI and 'negative Brexit tone'

U.K. stocks closed with gains Tuesday, helped by the pound's stumble after disappointing construction data suggested the British economy is slowing further.

The FTSE 100 index gained 0.4% to end at 7,468.11. The benchmark has risen for five straight sessions, its longest win streak since May, and it has clambered to levels last seen in early August.

Economic news: Traders got an unpleasant surprise from the IHS/Markit construction purchasing managers index that showed the sector unexpectedly contracted in September. The index came in at 48.1 from 51.1 in August, missing forecasts of a 50.9 reading.

It's the first time in 13 months that the index has fallen below the crucial 50 threshold that separates contraction from growth, according to IHS/Markit.

Analysts said the data indicate the economy is slowing and could scuttle the Bank of England's plans to raise interest rates later this year.

"The slowdown in growth comes at a particularly difficult time for BOE, which is grappling with higher-than-target inflation and the uncertainty of Brexit," said Boris Schlossberg, managing director of FX strategy at BK Asset Management, in a note.

"If [the] U.K. economy does begin to show serious signs of a slowdown, the BOE will be hard pressed to raise the rate in such an environment putting further downside pressure on cable," he added.

The pound fell to $1.3247 after the data, down from $1.3277 late Monday in New York. Sterling traded at $1.3399 late on Friday, but was knocked lower Monday after the manufacturing PMI also missed analyst expectations.

A weaker pound can boost the FTSE 100, as many of the index's multinational companies generate most of their sales in other currencies.

Besides the weak PMI reading, the British currency also was hurt Tuesday by "a negative Brexit tone," said Joshua Mahony, a market analyst at IG, in a note. European Union lawmakers "voted overwhelmingly against the commencement of trade talks with the U.K.," he said. They backed a resolution (http://www.marketwatch.com/story/eu-scolds-uk-for-lack-of-brexit-progress-2017-10-03) saying too little progress had been made in talks about Britain's exit from the EU to allow discussions to begin on a future trade deal with the U.K.

Stock movers: Shares of Ferguson PLC (FERG.LN) posted the biggest gain on Tuesday, rising 4%. The distributor of plumbing and heating products, formerly known as Wolseley, said it is initiating a GBP500 million share-buyback program, after profit jumped (http://www.marketwatch.com/story/ferguson-profit-up-declares-500-mln-buyback-2017-10-03) in the fiscal year to July 31.

Airline stocks were also higher, adding to gains logged Monday (http://www.marketwatch.com/story/european-airlines-take-off-after-monarch-collapse-leaves-room-for-rivals-2017-10-02) . Those came as the collapse of discount carrier Monarch Airlines (http://www.marketwatch.com/story/monarch-airlines-collapses-leaving-110000-passengers-without-flights-2017-10-02) was seen as easing competition for rivals and taking pressure off price wars in the sector.

Shares of easyJet PLC (EZJ.LN) added 1.3%, International Consolidated Airlines Group SA (IAG.LN) (IAG.LN) climbed 2.5%.

HSBC Holdings PLC (HSBA.LN) (HSBA.LN) (HSBA.LN) put on 1% after the bank said it would pay a third interim dividend for 2017 (http://www.marketwatch.com/story/hsbc-declares-interim-dividend-for-third-quarter-2017-10-03) of $0.10 per ordinary share.

On a downbeat note, shares of Coca-Cola HBC AG fell 1.4% after the bottler said its Chief Executive Dimitris Lois has died (http://www.marketwatch.com/story/coca-cola-hbc-ceo-dimitris-lois-has-died-2017-10-03).

On the FTSE 250 index , shares of Greggs PLC (GRG.LN) gained 1.4% after a well-received trading update from the bakery chain.

Services data ahead: Attention now turns to the services PMI out on Wednesday.

"With services comprising nearly 80% of U.K. economic activity the market will watch for any large deviation from expectation. The forecast for services PMI is 53.3 and any sharp decline toward 50 is sure to stoke worries that U.K. economy may be on the verge of tipping into a contraction," BK Asset Management's Schlossberg said.

 

(END) Dow Jones Newswires

October 03, 2017 12:27 ET (16:27 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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