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Brexit deal defeat knocks London’s blue chip stocks as pound weighs

Brexit deal defeat knocks London's blue chip stocks as pound weighs

LONDON, (DNA)  – Britain’s blue chip stocks were lower on Wednesday as a stronger pound lured investors toward domestic companies and away from exporters after Prime Minister Theresa May’s heavy Brexit defeat, while weak results weighed on Pearson.

The top share index was down 0.5% at 1054 GMT, lagging European peers as sterling hit its highest since November, a day after British lawmakers overwhelmingly voted against May’s divorce deal with the European Union. A loss had largely been priced in already, though the magnitude of the loss – a margin of 230 – came as a surprise.

The prime minister’s historic defeat was seen as reducing the chance of a hard Brexit even as uncertainty ahead of a no confidence vote in May’s government on Wednesday evening kept volumes muted.

Investors shunned consumer staples, which earn a big portion of their revenue abroad in foreign currency, with Unilever and Diageo dragging on the index.

Heavyweight oil and gas stocks were down 0.5%. The domestically focused midcaps, which make half of their income at home, were up 0.1%.

Ireland’s top share index, one of the barometers for Brexit sentiment, was up 0.5%. Investors have started tentatively to cover bearish short positions in banks, retailers and house builders, which are considered most at risk from a weaker UK economy amid Brexit uncertainty.

“I do think positions are being built for the domestic part of the market to become a bit more investible as the worst-case scenario becomes less likely,” said Emmanuel Cau, head of European equity strategy at Barclays.

But it will take time before global investors return en masse even with UK stocks trading at a big discount to euro-zone and US peers as investors digest a slew of headlines and data.

“People are still in wait and see mode and nobody wants to take a strong view because things can evolve very quickly from here,” said Cau. British inflation hit its lowest in nearly two years in December as fuel prices fell, leaving the Bank of England under no pressure to carry on raising interest rates as uncertainty over Brexit dominates the economic outlook.

Opposition Labour Party finance policy chief John McDonnell said that May could eventually get a deal through parliament if she negotiated a compromise with Labour.

House builders led the gainers, with Bovis Homes providing additional cheer after it forecast better-than-expected full year profits.

 






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