British Pound Tumbles After UK Vote; Tech Sell-Off Hits Nasdaq

The pound plunged Friday as the surprise election setback to Prime Minister Theresa May injected uncertainty into Britain’s negotiations with the European Union over Brexit.

But London equity markets gained on the drop in the British currency, along with bourses in Paris and Frankfurt. Stocks were mixed on Wall Street, with the Dow climbing to a new record, but the Nasdaq diving nearly two percent following a sell-off of tech highflyers.

Sterling slumped to a seven-week low of $1.2636 before recovering a bit in the aftermath of the election, which saw May’s Conservative party lose its majority following a surge by leftist Jeremy Corbyn’s Labour Party.

May called the election three years early in a bid to strengthen her hand in looming Brexit negotiations, but the gamble backfired spectacularly. The outcome forces her to rely on the support of Northern Ireland’s Democratic Unionist Party for a working majority.

Analysts said the vote outcome muddies the prospects for talks between the EU and Britain, which were due to start imminently.

“In many ways a hung parliament is the least market-friendly result because it creates uncertainty and could be the biggest delay to the start of Brexit negotiations,” said market analyst Jasper Lawler at London Capital Group.

“Arguably the (market) reaction has not been as extreme as the result” of the elections, he added.

However, the drop in the pound propelled the FTSE 100 higher by one percent.

Trading elsewhere suggested investors viewed the British uncertainty as localized, with Paris up 0.7 percent, Frankfurt 0.8 percent and Tokyo 0.5 percent.

Analysts described the market movements in the US as a rotation in which investors were taking profits from highly-valued sectors and putting the funds in areas that have underperformed, such as financials, energy and retailers.

Shares of tech giants like Apple, Amazon and Google Parent Alphabet all lost at least three percent, while beaten-down sectors including banks, energy and retailers posted gains.

The Nasdaq tumbled 1.8 percent, retreating from a record, while the Dow advanced 0.4 percent, setting a new record at 21,271.97.

“It is definitely a rotation,” said Nate Thooft, senior managing director, Manulife Asset Management.

“When it started to crack a little bit this morning …people jumped on the bandwagon and started taking some of their wins off the table.”

New York – Dow: UP 0.4 percent at 21,271.97 (close)

New York – S&P 500: DOWN 0.1 percent at 2,431.77 (close)

New York – Nasdaq: DOWN 1.8 percent at 6,207.92 (close)

Pound/dollar: UP at $1.2738 from $1.2719 at 2100 GMT on Thursday

Euro/dollar: DOWN at $1.1197 from $1.1211

Dollar/yen: UP at 110.26 yen from 109.81 yen

Oil – Brent North Sea: UP 29 cents at $48.15 per barrel

Oil – West Texas Intermediate: UP 19 cents at $45,83 per barrel

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