The surprise news of a UK general election on 8 June has triggered a recovery in the pound and weakened the FTSE 100 which is now down 1.5% to 7,218.
The two movements are interlinked thanks the large proportion of the FTSE 100 index which generates earnings in foreign currencies.
As we’ve seen since the Brexit vote last summer, a weaker pound can benefit companies who sell their goods in foreign currencies but then translate them into sterling when reporting their accounts.
Therefore strength in sterling makes these companies less attractive from a translational perspective - hence why the FTSE 100 is weak following the election announcement by Prime Minister Theresa May.
Miners had already got off to a bad start on the UK market today amid weaker commodity prices. Instead, the main stocks in decline immediately after the election announcement are banks, drug firms and various individual stocks that generate a large chunk of earnings from the US.
The list includes construction firm CRH (CRH), plumbing supplies group Wolseley (WOS) and utilities firm National Grid (NG.).
Interestingly, the domestically-focused FTSE 250 index does not rally off the back of the election news.
It had been weak since the start of the trading and remains down 0.9% to 19,349.
Theresa May says the election is the only way to guarantee certainty and stability in the wake of Brexit.
‘Today’s announcement suggests that Theresa May wants full control of the Brexit process without any interference from the opposition,’ comments Shilen Shah, bond strategist at Investec Wealth & Investment.
