| London close: Stocks slump as bonds and FCA warning weigh, Carney lifts pound The FTSE was a sea of red on Tuesday by a bruising combination of government bond pressure, a rising pound and a hit for banks and builders from a regulatory warning. London's stock benchmark lost 1.1% to close at 7,587.98, while the pound regained 0.4% against the greenback to 1.4135 and climbed 0.3% versus the euro to 1.1398 after comments on from Bank of England governor Mark Carney. A lower open on Wall Street poured further cold water on the mood, while oil prices were another dampener, with Brent Crude down 1.2% to $68.61 a barrel. Questioned by the House of Lords' economic affairs committee on Tuesday afternoon, Carney said: "The important thing with [monetary] policy now is that as slack in the economy has been taken out, we move into a more conventional area for monetary policy, where the focus is increasingly on returning inflation sustainably to target over an appropriate horizon". He said he saw a pick-up in UK business investment next year, once companies get a better idea of the shape of the post-Brexit relationship with the EU. "My impression of UK businesses is that they are looking for greater certainty and there should be a pick-up in investment in 2019." Mortgage numbers from the Bank and a warning from its regulatory arm, the Financial Conduct Authority, were also moving markets. The financial sector and housebuilders both hit after the City watchdog urged lenders to increase checks on interest-only mortgages. "Borrowing levels are high and there has been talk of a property bubble for some time now, and the prospect of another housing crash is weighing on Barclay's, Lloyds, RBS and HSBC," said analyst David Madden at CMC Markets. Investors were also digesting figures out earlier from the Bank showing that the number of new mortgages fell sharply in December as the housing market slowed down. Mortgage approvals dropped to 61,039 last month from 64,712 in November as the number of loans fell for purchases and remortgaging. The figure was well below expectations for 63,500 approvals and was the lowest since January 2015. A slump in commodity markets was also driven mining and energy stocks lower, with lower metals and oil prices undermining Rio Tinto, Anglo American, Shell and BP. To make matters worse for the European equity markets, the continued weakness in the US dollar had pushed up the pound and the euro ?" which have hurt the FTSE 100, DAX and CAC 40. On the pound's revival after falling below 1.40 in early trade, GKFX analyst David Morrison said the turnaround was surprising given calls for the Prime Minister's head after the leak of a Brexit impact report for the Cabinet overnight. According to confidential analysis produced for the government and leaked to Buzzfeed, Britain will be worse off under all plausible scenarios when it leaves the EU. "Today's press reports make dismal reading for PM Theresa May, with some insisting that her position is untenable. But the pound's strength is much more about dollar weakness. The downward trend in the greenback remains in place, despite yesterday's bounce as short-sellers booked profits. As US Treasury Secretary Steve Mnuchin made clear last week, there are plenty of positives in having a weaker currency and for now the dollar's path of least resistance is down." The US 10-year US Treasury yield pushed above the 2.7% level for the first time since April 2014 and the two-year yield hit its highest level since September 2008. Eurozone sovereign bond yields were driven by comments from European Central Bank governing council member Klaas Knots, who said the European Central Bank's asset purchase programme should "as soon as possible". He argued that there is not a single reason left to continue the quantitative easing in the euro area and said the ECB's bond buying programme has already achieved "what could realistically be expected of it". Some fairly hawkish rhetoric from ECB board member Benoit Coeuré also was adding to the pressure under yields. Meanwhile, the move higher in US yields was prompted by the prospect that US policymakers could well revise their forecasts higher for the US economy in light of the recent tax changes brought in by the Trump administration earlier this month. The Fed policy statement will be released on Wednesday night. "The likelihood of a hike is near zero, and the fact that there is no press conference or update to economic projections means the statement will be in focus," said RBC Capital Markets. "But we think there will be important tweaks that will make this statement much more hawkish than the December version." In other corporate news, Anglo American fell as it said the value of rough diamond sales for De Beers' first sales cycle of 2018 came to $665m. Imperial Leather and Original Source maker PZ Cussons declined as it reported a drop in adjusted interim profit amid margin pressures and "tough" trading conditions, while CYBG was in the red despite posting a jump in first-quarter lending. Irish convenience foods group Greencore reversed its earlier course to trade lower after saying revenue grew 54% in the 13 weeks to 29 December. UDG Healthcare turned lower despite saying it expects adjusted earnings per share to rise by 18% to 21% in 2018 following strong trading in the first quarter, while Domino's Pizza also dropped despite saying it expects annual profit to beat market forecasts after a strong performance in the fourth quarter. Zoopla and uSwitch operator ZPG moved higher initially but then fell later. It reported a good start to the financial year across both divisions, with its websites and mobile apps attracting 53 million average monthly visits during the three months to 31 December. Shares in Randgold Resources was boosted by an announcement late on Monday that its Loulo-Gounkoto gold mining complex is on track to improve on its record performance in 2016, but the shares fell into the red late on. Mediclinic was hit by a downgrade to neutral at UBS after its 20% rally from November's lows. Bucking the trend were only 10 of the FTSE 100, led by Reckitt Benckiser as Credit Suisse reiterated its 'outperform' rating with a target of 7,500p. Informa was up as it confirmed the takeover of smaller events rival UBM for £3.9bn, looking to create a business-to-business information giant that will operate as a single business by the start of 2019. Film and television producer and distributor Entertainment One edged up after confirming that it had raised £53m in an placing with City institutions at a price of 305p as part of its plan to snap up the rest of US television producer The Mark Gordon Company. Dechra Pharmaceuticals was boosted by an upgrade to buy at Jefferies. | 
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