Sterling sell-off continues over Brexit gloom

Buying fizzles out in some markets as talks on US stimulus fail to make progress

EU chief negotiator Michel Barnier. Talk of a no-deal Brexit is weighing on markets. Photograph: TOLGA AKMEN/AFP via Getty Images

EU chief negotiator Michel Barnier. Talk of a no-deal Brexit is weighing on markets. Photograph: TOLGA AKMEN/AFP via Getty Images

 

A sell-off in sterling continued on Friday and London-listed banks fell after Britain warned there was a “strong possibility” it would leave the EU without a trade deal.

The pound slipped a further 0.6 per cent against the dollar to purchase $1.3216, taking its loss this week to 1.6 per cent - putting the currency on track for its worst performance since September.

On Thursday evening, UK prime minister Boris Johnson told the nation to prepare for the Brexit transition to expire at the end of the year without a trade agreement. Earlier, Brussels unveiled its contingency plans to ensure airlines and hauliers could temporarily continue their usual routes after Britain’s departure from the EU’s single market. “The deal on the table is really not right for the UK at the moment,” Mr Johnson said.

Trading

The Stoxx 600 dropped 0.8 per cent in morning trading and UK’s FTSE 100 slipped 0.5 per cent. Economically sensitive sectors in London were the worst off, with property, energy and financial companies leading the falls.

A FTSE index tracking London-listed banks lost 1.5 per cent, with domestically focused Lloyds shedding about 3 per cent and NatWest tumbling 4 per cent.

The consensus among analysts and investors remains that some form of deal can still be reached before a final deadline set for this Sunday, although some have warned that sterling will plunge without an agreement.

“Our base case remains that a deal is more likely than not,” strategists at Credit Suisse said.

Sterling could suffer if a deal is not agreed, said Mark Haefele, chief investment officer at UBS Global Wealth Management. “But next week remains in play, and our base case is that a deal will be reached,” he added.

Piling the pressure on sterling and UK lenders were remarks made by Bank of England governor Andrew Bailey that it was taking “extensive work” on how to implement negative interest rates. Mr Bailey made the comments following the BoE’s release of its latest financial stability report.

Asian shares rose on Friday as progress on covid-19 vaccines boosted investor sentiment, but tricky Brexit negotiations and US stimulus talks capped gains in riskier assets.

MSCI’s ex-Japan Asia-Pacific index firmed 0.3 per cent, on track for its sixth straight week of gains, while Japan’s Nikkei eased 0.4 per cent. Investors bet on stronger economic growth next year as more countries prepare for vaccinations.

US authorities voted overwhelmingly to endorse emergency use of Pfizer’s coronavirus vaccine while doses of a Covid-19 vaccine made by China’s Sinovac Biotech SVA.O are rolling off a Brazilian production line.

Buying fizzled out in some markets as talks on US. stimulus failed to make progress .

Deadline

“We have the Brexit deadline. Some people say Democrats are gaining momentum in Georgia’s Senate election while we are near the end of year,” said Masaru Ishibashi, joint general manager of trading at Sumitomo Mitsui Bank. “Put all this together, you would think we are likely to see more profit-taking even though no one thinks we will be entering a bear market.”

Investors have in recent weeks bet that Republicans would win at least one of the two contested seats in the state of Georgia, enabling them to control the US Senate and block some policies favoured by Dermocrats, such as higher corporate taxes. Overnight on Wall Street, the Dow Jones Industrial Average fell 0.23 per cent, the S&P 500 lost 0.13 per cent and the Nasdaq Composite added 0.54 per cent.

The yen edged up 0.2 per cent to 104.00 while the Australian dollar extended its gains to $0.7557, hitting its highest since June 2018. Oil prices climbed further, with Brent hitting levels not seen since early March, as coronavirus vaccination rollouts fuelled hopes that crude demand would pick up in 2021. Brent crude rose 0.2 per cent to $50.34 per barrel while US West Texas Intermediate (WTI) crude gained 0.2 per cent to $46.89 a barrel. – Financial Times, Reuters