London Markets: FTSE 100 drops as pound climbs after strong retail-sales data

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U.K. stocks tipped lower on Thursday after the pound rallied on the back of better-than-expected retail sales data that brought an August Bank of England interest rate rise back into play.

What are markets doing?

The FTSE 100 index UKX, -0.76%  fell 0.1% to 7,784.19, adding to a 1.1% loss from Wednesday.

The pound GBPUSD, +0.1873%  climbed to $1.3396 from $1.3348 late Wednesday in New York. Sterling fell to a fresh 2018 low on Wednesday, after official figures showed U.K. inflation unexpectedly fell in April, seen as dampening expectations for a Bank of England interest rate rise in the summer.

What is driving the market?

However on Thursday, the retail sales data painted a more upbeat picture of the U.K. economy and suggested the economy may be able to stomach a rate hike this summer. Retail sales rose 1.6% month-on-month in April, beating forecasts of a 0.2% rise, recovering after a spell of cold weather.

Investors in the U.K. are watching data releases closely, after BOE Governor Mark Carney made clear recently that the central bank’s next policy move depends on an improvement in British economic health.

More broadly, traders were still digesting the minutes from the U.S. Federal Reserve’s May 1-2 meeting, which were released late Wednesday. The minutes suggest the U.S. central bank is on track to hike interest rates in June and is keeping calm about the inflation outlook.

Check out: How stock-market investors could be surprised by a peak in interest rates

Staying in the U.S., President Donald Trump rekindled concerns of a global trade war, announcing an investigation that could lead to import tariffs on cars.

What are strategists saying?

“The pound was buoyed this morning as retails sales beat expectations across the board. This is a small reprieve for Mark Carney at the Bank of England, who has insisted that the dip in Q1 GDP was temporary, and that the fundamentals for the U.K. economy could bounce back and move the central bank closer to an interest rate hike. This morning’s retail figures indicate this could happen,” said Hamish Muress, currency analyst at OFX, in a note.

”This bounce for sterling contrasts with yesterday’s decline and shows how the currency is currently trading on the release of every piece of economic data as it tries to judge how the economy is performing,” he added.

Stock movers

Shares of Tate & Lyle PLC TATE, +8.64%  rose 4.5% after the food ingredients maker said adjusted profit rose 13% in the last fiscal year.

Kingfisher PLC KGF, +1.46%  rose 1.3% even after the do-it-yourself retailer said first-quarter sales fell due to bad weather.

Shares of Daily Mail & General Trust PLC DMGT, -9.67% lost 6.5% after the newspaper publisher reported a drop in revenue in the first half of fiscal 2018.  

Mediclinic International PLC MDC, -8.77%  lost 5.9% after the health care group said it swung to a full-year pretax loss due to one-time charges related to its Switzerland business and intangible assets.

United Utilities Group PLC UU., -1.20%  gave up 2.3% after reporting a 2.4% fall in fiscal 2018 pretax profit.