LONDON: U.K. stocks dropped sharply Tuesday, as part of a selloff in global equity markets after North Korea launched a ballistic missile over Japan. The FTSE 100 index UKX, +0.38% fell 0.9% to close at 7,337.43. No sector finished higher. Trading in the U.K. was closed Monday for the August Bank Holiday. The few advancers in the London benchmark were led by miners Randgold Resources Ltd. RRS, -1.07% GOLD, +1.96% and Fresnillo PLC FRES, -0.80% as gold GCZ7, -0.36% shot above $1,300 an ounce to around an 11-month high. Randgold rallied 4.6% and Fresnillo climbed 2.6%. The moves came after Pyongyang launched a missile early Tuesday local time that passed over the northern Japanese island of Hokkaido and landed in the Pacific Ocean. It was the first missile fired over the main lands of Japan since 2009. “This has understandably seen an overnight preference for safe havens such as gold, the Swiss franc, Japanese yen and bonds, at the expense of equities,” said Accendo Markets head of research Mike van Dulken, adding that the missile launch undermines attempts by the U.S. to negotiate with North Korea’s leader Kim Jong Un. “Beware the impact of additional [U.S. dollar] weakness (2.5 year lows), which could weigh on both the U.K. FTSE and German DAX DAX, +0.62% by way of a stronger [pound] and [euro],” he said.
The pound GBPUSD, +0.0155% bought $1.2940, compared with $1.2933 late Monday in New York. A stronger pound can hurt shares of multinational companies as they make the bulk of their sales and earnings overseas. Shares of drugmaker GlaxoSmithKline PLC GSK, +1.03% GSK, -0.35% fell 1.4% and British American Tobacco PLC BATS, +0.53% BTI, -0.66% gave up 1.7%. The euro EURUSD, -0.2004% rose above $1.20 for the first time since January 2015. The Stoxx Europe 600 SXXP, +0.58% during the session slid more than 1% to a six-month low. Insurers: Shares of insurers dropped as analysts gauged the potential toll on the industry from Hurricane Harvey, which hit the U.S. Gulf Coast in recent days. On the midcap FTSE 250, Hiscox Ltd. HSX, +0.16% slumped 2.3%, Lancashire Holdings Ltd. LRE, +0.75% lost 3.5% and Beazley PLC BEZ, -0.30% fell 2.8%. The companies are Lloyd’s of London insurers.
Insured losses, based on precedent, could come in between $4 billion and $12 billion, excluding personal home flood claims that will be absorbed by the U.S. government’s National Flood Insurance Program, Peel Hunt analyst Andreas van Embden wrote in a Tuesday research note. “The main uncertainty is around commercial property and business interruption claims, particularly now the Houston metropolitan area is being affected by floods,” said van Embden. Harvey made landfall on Friday as a Category 4 hurricane. The now-tropical storm is expected to return to the Houston area late Tuesday or Wednesday. Harvey “is unlikely to be a market-turning event but enough to start to eat into the [catastrophe] budgets and expose the vulnerable underlying returns the Lloyd’s insurers are generating in the current soft market, with risk adjusted returns between 10%-11%,” van Embden added.
