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FTSE 100 slips after hitting record high FTSE 100 slips after hitting record high
(about 1 hour later)
The FTSE 100 index has narrowly missed out on an all-time closing high after slipping back from record levels.The FTSE 100 index has narrowly missed out on an all-time closing high after slipping back from record levels.
The UK's benchmark index hit its highest ever level during trading at 7,129.83 shortly after midday.The UK's benchmark index hit its highest ever level during trading at 7,129.83 shortly after midday.
But it then fell back during the afternoon, to finish the day 0.4% lower at 7,070.88 points. But it then fell back in the afternoon, to finish the day 0.4% lower at 7,070.88 points.
Analysts said investors eased back after shares had been lifted by the pound falling on fresh worries about the economic impact of Brexit. Analysts said the stocks initially gained from falls in sterling, which extended its worst run since the Brexit vote to drop below $1.22 and €1.10.
Connor Campbell, an analyst at Spreadex, said the FTSE's afternoon fall was either due to "profit-taking" or warnings that US banks Citi and Morgan Stanley may move operations out of London. The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad.
"Either way, the FTSE couldn't hold onto its highs for long," he said. A weaker pound means overseas revenues are worth more when they are converted back into sterling.
Who's afraid of the falling pound?Who's afraid of the falling pound?
Ahmed: The pound's fall and why it mattersAhmed: The pound's fall and why it matters
Viewpoints: How low can the pound go?Viewpoints: How low can the pound go?
Sterling slipped below $1.23 and €1.11 on Tuesday to its lowest value since last week's flash crash. The index broke its last intra-day high from 27 April 2015, when it reached 7,122.74 points, but could not hold on to beat that day's record closing high of 7,103.98.
The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad. Neil Wilson, a markets analyst at ETX Capital, said: "Brexiters might point to the FTSE's rise as a sign of strength, but this is very much a story of sterling weakness boosting foreign earnings."
A weaker pound means overseas revenues are worth more when they are converted back into sterling. FTSE investors took their profits in the afternoon, sending the index down again, because "this is not a rally based on lots of confidence", he told the BBC.
The last intra-day high for the index came on 27 April 2015, when it reached 7,122.74 points during trading before falling back to finish at a record closing high of 7,103.98. "The weak pound is 'good' for the 100 but overall we have to remember that the weak pound is a symptom of much deeper worries about the UK economy and Brexit," he added.
"Brexiters might point to the FTSE's rise as a sign of strength, but this is very much a story of sterling weakness boosting foreign earnings - which account for around two-thirds to three-quarters of FTSE 100 company revenues," said Neil Wilson, a markets analyst at ETX Capital. Falling further
Firms with large foreign businesses, such as Burberry, were among the big winners on Tuesday. Sterling fell nearly 2% against the dollar on Tuesday to hit $1.2106 and 1.1% against the euro to €1.0964.
Shares in domestic companies, including housebuilders, were also doing well because of hints from the Bank of England that interest rates will remain low for a while, Mr Wilson said. The pound is at its lowest level since Friday's flash crash, when it tumbled to around $1.18 before recovering.
'Getting worse'
The pound has fallen more than 4% against the dollar in the past week, even putting aside Friday's flash crash - when it tumbled to around $1.18 before recovering.
Some traders said the further falls on Tuesday were prompted by a report that Russian bank VTB may move its European hub away from London, adding to worries of foreign investment leaving the UK.
Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66bn a year.
Analysis: Kamal Ahmed, BBC economics editorAnalysis: Kamal Ahmed, BBC economics editor
Why does the fall of the pound matter?Why does the fall of the pound matter?
On the upside, it matters for exporters which are boosted as their goods are far cheaper on foreign markets.On the upside, it matters for exporters which are boosted as their goods are far cheaper on foreign markets.
It matters for multinational companies like pharmaceutical firms which earn much of their income in dollars. It matters for the tourism industry in the UK, as foreign visitors flock here for bargains and good value holidays.It matters for multinational companies like pharmaceutical firms which earn much of their income in dollars. It matters for the tourism industry in the UK, as foreign visitors flock here for bargains and good value holidays.
On the downside, it matters for tourists travelling abroad who will find everything they buy much more expensive.On the downside, it matters for tourists travelling abroad who will find everything they buy much more expensive.
It matters for the food and fuel this country imports as it becomes more expensive. It matters for inflation, as the rise in import costs feeds through to businesses and the High Street.It matters for the food and fuel this country imports as it becomes more expensive. It matters for inflation, as the rise in import costs feeds through to businesses and the High Street.
And remember, it does not need much of a rise in inflation to wipe out real income growth which at present is running at around 2%. If real incomes start falling, that is when the fall in sterling becomes a truly political issue.And remember, it does not need much of a rise in inflation to wipe out real income growth which at present is running at around 2%. If real incomes start falling, that is when the fall in sterling becomes a truly political issue.
Because the pound in your pocket will actually be worth less.Because the pound in your pocket will actually be worth less.
Read Kamal's blog in fullRead Kamal's blog in full
Analysts said the pound could still fall further, with ETX Capital's Mr Wilson warning: "Sterling seems to be looking for a level and it's really unclear where that could be." Some traders said sterling's further falls were linked to reports on Tuesday that Russian bank VTB and US banks Citi and Morgan Stanley could move staff outside of London, adding to worries about foreign investment leaving the UK.
He added that Friday's flash crash, blamed at the time on a rogue computer trade, could now potentially be seen as "a very tentative toe in the water". Others pointed to leaked documents warning that a withdrawal from the EU single market could cost the Treasury more than £66bn a year.
'Flash crash was right''Flash crash was right'
Also on Tuesday, a senior official at Norway's sovereign wealth fund, the world's largest, said the flash crash had correctly reflected expectations for the UK economy. Also on Tuesday, a senior official at Norway's sovereign wealth fund, the world's largest, said Friday's flash crash had correctly reflected expectations for the UK economy.
The fund is one of Britain's biggest foreign investors, holding shares in most large UK companies and co-owning Regent Street. The fund is one of Britain's biggest foreign investors, holding shares in most large UK companies and a stake in London's Regent Street.
Oeyvind Schanke, the fund's chief investment officer for asset strategies, told Reuters: "I do believe in market forces and I do believe that investors have an ability to price. And what that price move indicates to me is that they are worried about what is happening in the UK."Oeyvind Schanke, the fund's chief investment officer for asset strategies, told Reuters: "I do believe in market forces and I do believe that investors have an ability to price. And what that price move indicates to me is that they are worried about what is happening in the UK."
'Not a crisis''Not a crisis'
Sterling has now fallen about 18% against the dollar since the referendum to lows not seen since 1985.Sterling has now fallen about 18% against the dollar since the referendum to lows not seen since 1985.
However, the UK is not facing a "currency crisis", according to Gerard Lyons, the former chief economic adviser to Boris Johnson and a leading Brexit campaigner.However, the UK is not facing a "currency crisis", according to Gerard Lyons, the former chief economic adviser to Boris Johnson and a leading Brexit campaigner.
"There's no hard and fast rule, but you tend to know a currency crisis when you see it," Mr Lyons, who is now a strategist at Net Wealth Investments, told the BBC."There's no hard and fast rule, but you tend to know a currency crisis when you see it," Mr Lyons, who is now a strategist at Net Wealth Investments, told the BBC.
"Effectively a currency crisis is when it's seen as out of control and it starts to force policy to do things that are not in the best interests of the domestic economy.""Effectively a currency crisis is when it's seen as out of control and it starts to force policy to do things that are not in the best interests of the domestic economy."
He added that a fall in sterling was "inevitable, whatever the outcome of the referendum" because it had been one of the world's most overvalued currencies.He added that a fall in sterling was "inevitable, whatever the outcome of the referendum" because it had been one of the world's most overvalued currencies.