Britain’s benchmark share index has surged past the psychologically significant 7,000 point mark on Tuesday morning — hitting a level not seen since May 2015, and around 2% away from an all-time high.
Around 8:15 a.m. BST (3:15 a.m. ET) the FTSE 100 is higher by just shy of 0.9% to 7,048 points, extending the more than 1% gain seen on Monday. Here’s the chart:
Stocks in the UK have taken a leg up in early trading after the pound sterling slipped to a fresh post-referendum low, as worries in the City of London about the potential for a so-called “hard Brexit” intensify. The catalyst for the slump in the pound, which has now moved into its second day is Theresa May’s announcement on Sunday that Article 50 will be triggered before the end of March 2017. Article 50 starts the clock on Britain’s 2-year window to officially leave the European Union and the creepy realisation that it is actually happening is spooking the City.
To the uninitiated, a weaker pound might seem like bad news for UK stocks, however around 70% of the revenue of the companies that make up the FTSE 100 is derived from abroad, meaning that when sterling is weak, they make more money. That’s because the index is stuffed full of mining companies, oil firms, and pharmaceutical giants who use the UK as a base, but tend to denominate their assets in dollars.
While stocks have jumped so far, Kathleen Brooks of City Index notes that fears in the City about the government ignoring its needs in Brexit negotiations could subdue stocks later in the day, saying in an emailed note:
“One thing that could knock the FTSE 100 temporarily on Tuesday were some reports late last night, suggesting that the UK government won’t prioritise protection of the UK’s financial services sector once the UK has left the EU. This could weigh on the UK’s large banking sector, and could trigger some profit taking on FTSE positions this morning.”