U.K. stock rebounded from a one-month low on Friday, shaking off a continued rally in the pound as drugmakers advanced after industry heavyweight AstraZeneca released positive trial results.
U.K. gross domestic product data showed Britain’s economy expanded faster than expected in the end of 2017.
What are markets doing?
The FTSE 100 index UKX, +0.65% rose 0.7% to close at 7,665.54, breaking a two-day losing run that left the benchmark at its lowest close since Dec. 22 on Thursday.
The pound GBPUSD, +0.1485% rose to $1.4181 from $1.4139 late Thursday in New York. Sterling had rallied above $1.43 in Thursday’s trade, but was sent lower against the dollar late in the day after U.S. President Donald Trump spoke out in favor of a stronger greenback.
What are strategists saying?
“Equity markets have been on the march again today, but it is the FTSE 100 that is stealing the show, as it steadily claws back ground lost since mid-January. Breadth has been weaker for this index than for the ever-advancing U.S. indices, but this tends to provide at least a short-term buying opportunity, which the lack of upward movement in sterling has amplified,” said Chris Beauchamp, chief market analyst at IG, in a note.
“It still has a long way to go before it approaches the supremely bullish outlook in U.S. stocks, but the dip buyers know an opportunity when they spot one,” he added.
What’s driving the market?
The FTSE 100 ended a volatile week 0.8% lower, its biggest weekly loss since early December. The drop comes as stocks have been whipped around by a strengthening pound, which has partly rallied on optimism that London and Brussels will agree on a Brexit deal and partly because of a sharp dollar selloff.
The ICE U.S. Dollar Index DXY, -0.49% was Friday down 0.4% and set for its biggest weekly loss since May last year with a 1.8% weekly slide. The dollar has been falling over the past month, but accelerated its selloff on Wednesday when U.S. Treasury Secretary Steven Mnuchin said a weaker buck is good for U.S. trade.
A stronger pound tends to weigh on the internationally-exposed FTSE 100 index as about 75% of the benchmark’s revenue is generated overseas. That means earnings are hit when converted back into sterling.
On Friday, however, the rise in the pound didn’t hold back the FTSE. The rise was largely due to a 1.9% rise in heavyweight AstraZeneca PLC AZN, +1.93% AZN, +1.33% after the drugmaker released positive results for its PT010 therapy for chronic obstructive pulmonary disease.
Among other pharmaceutical companies, shares of Shire PLC SHP, +2.23% SHPG, +2.06% put on 2.2% and GlaxoSmithKline PLC GSK, +1.50% GSK, +1.77% rose 1.5%.
What else is new?
The U.K. economy grew 0.5% in the fourth quarter of 2017, beating forecasts of a 0.4% reading. Year-over-year economic growth fell to 1.8% from 1.9% in 2016.
Speaking on the BBC Radio 4’s Today program from Davos, Bank of England Gov. Mark Carney said the Brexit effect on the U.K. economy is likely to be short term, forecasting a pickup in growth once there’s more clarity on the EU divorce negotiations.
“There’s the prospect this year, as there’s greater clarity about the relationship with Europe, and subsequently with the rest of the world, for a recoupling if I can use that term, borrow it from Gwyneth Paltrow, so a conscious recoupling of the economy — the UK economy — with the global economy,” he said in the interview.
Actress Paltrow used the term “conscious uncoupling” when separating from Chris Martin.