FTSE higher despite US losses as Brexit tensions build, and Rio Tinto CEO to depart after caves scandal

“This was the week when Brexit returned as a live issue for the markets. In the short-term the increased chances of a messy exit from the EU have been a tailwind for the UK’s flagship stock market index which looks on course for a positive week despite investors being challenged elsewhere by heavy selling on US markets,” says AJ Bell Investment Director Russ Mould.

“This is not a surprise, after all the FTSE 100 has international horizons and the resulting weakness in the pound has boosted the relative value of constituents’ overseas earnings.

“Over the four-and-a-bit years since the Brexit vote though the FTSE has dramatically underperformed other major markets – with investors apparently wary of the political risks.

“The UK economy is certainly in recovery mode – rising 6.6% in July but this number is definitely worth keeping in perspective. The economy is still significantly smaller than it was pre-Covid.

“Oil prices remained on the back foot at the end of a volatile week – with Brent Crude staying below $40 per barrel which feels like an important threshold for both oil companies and major oil producing countries.

“Gold prices have only shone intermittently this week despite signs of reduced risk appetite with the $2,000 mark reached in August looking fairly distant for now.”

Rio Tinto

“Jean-Sébastien Jacques has fallen on his sword over Rio Tinto’s destruction of two sacred Aboriginal caves in Australia.

“While he claims not to have been aware of the importance of the caves prior to Rio blowing them up to expand an iron ore mine, there was no choice but for the company’s leader to take ultimate responsibility for the decision.

“The scandal is yet another example of how investors are no longer standing for bad corporate practices.

“For decades, miners have had to be responsible in how they treat the land they are working for metals and minerals. Respecting areas of cultural importance is a textbook requirement for the sector, so Rio Tinto really did mess up when it didn’t do its homework properly.

“The negative response from various shareholders following an inquiry into the incident highlights how investors are no longer standing for bad behaviour. Normally one would associate shareholder activism with trying to change corporate strategy or blocking excessive remuneration, yet Rio Tinto is a broader example of how the wrong decision-making can make investors angry and cause them to flex their muscles.

“Jacques now leaves a tainted legacy, with a cloud cast over his previous achievements of making Rio more efficient and ironically more appreciative of ESG issues by being a trail blazer in the industry by becoming the first diversified miner to exit the coal sector.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.

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