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U.K shares gained the most among western-European benchmarks on Monday. While a drop in the British Pound helped export company shares rise, rising oil prices supported energy producers.
The FTSE 100 index hit 16-month highs at 6995.05 and is heading for a major milestone at 7000.00, after Prime Minister Theresa May on Sunday said that she would trigger Article 50 of the EU’s Lisbon Treaty as soon as the end of March. This will be the starting point for two years of negotiations between the U.K and the European Union regarding the exit of the UK from the 28-nation bloc.
The British Pound fell to as low as 1.28446 against the dollar – the lowest since July 06th and is expected to plunge deeper to hit a new three-decade low at 1.27940 as investors have been increasing positions against the currency. According to the Commodity Futures Trading Commission, short positions on the Sterling outnumbered long positions by 87,714 contracts last week.
A weak pound fueled shares of international companies who generate a large part of their revenue and profit from overseas. Among the best performers in the 100 constituents making up the index, shares of Hikma Pharmaceuticals PLC added 2.2%, while consumer goods company Unilever PLC gained 1.4% and alcoholic beverages company Diageo rose 1.7%.
Banking giant HSBC Holdings plc, with its interests overseas overwhelming its interests in the domestic banking sector, also jumped as much as 1.54%. Lower rates in the U.K are making it harder for the bank to sustain profitability. However, most of HSBC’s business is outside the U.K and includes its U.S operations – a market where interest rates are likely to rise soon.
Soaring oil prices boosted energy companies. Royal Dutch Shell topped gainers today. Shell’s A shares were up 2.90% to 1963.5p while its B shares inched 2.91% higher. Shares of BP climbed 1.98%.
At the bottom of the performers list, BT Group plc lost 1.38% after the Financial Times reported that negotiations between BT Group and Ofcom have broken down. The two companies have been negotiating a deal to transform Ofcom’s network division Openreach. If a deal cannot be struck with BT then it will be forced to restructure its company according to European regulators.
Fig: FTSE 100 H4 technical chart
The FTSE has been in a strong rally from as low as 6645.00. The index broke August’s high at 6956.21 to set a new record high for this year. As can be seen from the stochastic chart, the market has entered the overbought zone. Hence, a consolidation is expected before the index can surge higher.
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