LONDON: Sterling's rise to its highest level since the Brexit vote weighed on Britain's FTSE 100 on Tuesday, while focus turned from geopolitical risks to corporate earnings which were largely supportive.
The FTSE 100 was little changed at 0830 GMT, as gains in financials and mining stocks were cancelled out by falls in large dollar-earning exporters, which suffer from a stronger pound.
Diageo, Unilever, British American Tobacco , and Imperial Brands all fell 0.4 to 1.1 percent. Sterling's climb has weighed on the internationally-exposed FTSE 100, which underperformed European stocks.
"Large-cap UK equities are still largely driven by the fate of sterling and with the recent strength of the currency the valuations of UK multinationals trade at a discount to global peers," said Edward Park, investment director at Brooks Macdonald.
Park has upgraded his outlook for UK equities from negative to neutral, but was keeping exposure to UK domestic earners below the benchmark average.
Associated British Foods shares rose 2.6 percent despite profit falling slightly, as traders focused on a resilient performance from its fashion business Primark.
"As previously guided, margins in the second half are expected to improve, benefiting from better buying and a weaker US dollar," wrote analysts at Davy Research.
"News of a new US store in Florida may spark some interest," noted UBS analysts.
Reckitt Benckiser shares fell 2.8 percent after Credit Suisse downgraded the stock to underperform.
"We are particularly concerned about RB's OTC (over the counter) consumer health business, noting fewer science-based innovations and increased pressure from generics," Credit Suisse analysts wrote.
Russia-exposed stocks recovered some of their sharp losses as investors grew less anxious about US sanctions. Evraz gained 4.3 percent to top the FTSE, while Polymetal International rose 3 percent.
Mid-cap stocks saw strong gains after results. Emerging markets asset manager Ashmore rose 6.3 percent to top the FTSE 250, after reporting the strongest net inflows since June 2013, boosting its assets by 10 percent in its third quarter.
"We expect consensus to increase 3-4 percent on the back of today's results," said UBS analysts.
Strong demand for trainers and track pants boosted JD Sports profits, sending its shares up 4.5 percent.
Shares in roadside assistance firm AA rose 6.6 percent to the top of the small-cap index after reporting results, and chief financial officer Martin Clarke saying there had not been any "substantive" approach for the firm.
Earnings were being watched keenly for signs of strain from a stronger pound, and after a first quarter marred by significantly higher volatility than 2017.
"We view this earnings season as critical for sentiment given the market's heightened volatility and the slightly softer economic data in Q1," said Brooks Macdonald's Park.
Goldman Sachs strategists expect earnings for the more internationally-exposed FTSE 100 to deliver greater positive surprises than FTSE 250 results. But analysts have been revising down their estimates for FTSE 100 earnings in recent weeks.
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