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LONDON MARKET CLOSE: Pound Eases From Highs As Brexit Optimism Wanes

Fri, 20th Sep 2019 16:55

(Alliance News) - Stocks in London ended mixed on Friday, with the FTSE 100 shedding its earlier pound weakness related gains following mixed messages about progress being made surrounding Brexit.

The FTSE 100 index closed down 11.50 points, or 0.2% at 7,344.92, ending the week down 0.4%. The large cap index had hit an intraday high of 7,376.31 in afternoon trade.

The FTSE 250 ended up 79.94 points, or 0.4% at 20,169.40, ending the week down 0.2%, and the AIM All-Share closed up 0.72 points, or 0.1% at 886.48, ending the week up 0.1%.

The Cboe UK 100 ended down 0.4% at 12,443.86, the Cboe UK 250 closed up 0.3% at 18,063.08, and the Cboe Small Companies ended down 0.4% at 10,959.63.

In Paris the CAC 40 ended up 0.6%, while the DAX 30 in Frankfurt ended up 0.1%.

IG Group's Josh Mahony said: "The FTSE 100 is erasing its morning gains as we head into the close, with the recent bout of market uncertainty continuing to dominate. In a week where central banks have been the main focus, it seems markets are somewhat confused as to whether to celebrate the recent easing or instead worry that it may not last long enough. Dollar strength has dominated the FX space over the course of the day, with the greenback gaining ground across the board.

"Interestingly, this dollar rally has masked much of the Brexit optimism that has been growing over the course of the day. Talk of gradual progress has also been accompanied by plenty of commentary of a determination to get a deal done by the October deadline. While the UK and EU clearly remain some way from an ultimate resolution, there is a growing feeling that the EU would be willing to drop the controversial backstop. The question is whether there is enough time to provide border solutions that can convince each EU member (not least the Irish)."

On the London Stock Exchange, housebuilders ended among the blue chip risers after the risk of a no-deal Brexit seemed to be reduced amid positive comments from the European Commission's Jean-Claude Juncker on Thursday.

Persimmon closed up 4.2%, Barratt Developments up 2.3%, Taylor Wimpey up 3.0% and Berkeley Group up 1.1%.

Analysts at FXPro commented: "The European Commission President Jean-Claude Juncker perked up the pound on Thursday night, noting that there is still a chance for a Brexit deal.

"We should mention that housebuilders are very sensitive to no-deal Brexit consequences outlook. This year, it was also possible to observe how stock quotes Persimmon and Taylor Wimpey keep up with the pound following the news about Brexit, reaching the bottom in August. With no-deal exit from the EU the construction sector could receive a severe blow, having lost a powerful flow of investment both from outside and inside the UK. All that makes this sector especially sensitive to such kind of news."

Royal Bank of Scotland closed up 2.6% after the state-backed lender became the first of the 'Big Four' blue chip banks to appoint a woman as its chief executive.

As was expected, RBS appointed the favourite for the top job Alison Rose as CEO. She becomes the first female CEO in the company's 292-year history and will take the reins from current CEO Ross McEwan whose departure was announced in April. He will formally step down on October 31.

Rose is currently deputy chief executive of Natwest Holdings, RBS's ring-fenced holding company.

At the other end of the large cap index, Rolls-Royce closed down 2.1% after the jet engine maker warned warned of further delays rectifying problems with its Trent 1000 engines, which have left planes being grounded.

As a result, the reduction in the number of grounded aircraft to less than 10 will now be delayed until the second quarter of 2020, Rolls-Royce added.

Rolls-Royce said it has accelerated intermediate pressure turbine blade replacement for a limited number of Trent engines. This resulted in additional engine removals, leading to further delays.

Rolls-Royce had to start a major Maintenance Repair & Overhaul programme due to faster-than-expected deterioration of the high-pressure turbine blade on the Trent 1000 TEN series of jet engines. The engines are used to power passenger aircraft such as the Boeing 787 Dreamliner.

In the FTSE 250, Investec ended down 8.4% after the Anglo-South African bank said first-half adjusted operating profit will be slightly behind the prior-year period due to challenging market conditions.

Investec attributed this to persistent uncertainty relating to Brexit, and depreciation of the South African rand against sterling.

The pound was quoted at USD1.2490 at the London equities close, higher compared to USD1.2485 at the close Thursday. Sterling had touched an intraday high of USD1.2582 versus the greenback early Friday - its highest level since mid July.

City Index analyst Fiona Cincotta commented: "The pound, however, was unable to hold onto Brexit optimism. Less than 24 hours after Jean Claude Juncker raised hopes that a deal could be achieved, comments by the Irish Prime Minister poured cold water over such optimism. He insists that the two sides are still a significant distance from each other.

"Sterling has declined from its recent 2 month high versus dollar and is back trading sub USD1.25. The pair is targeting USD1.2450 and rapidly. Pound traders continue to lurch from headline to headline in search of clues as to whether the UK will be leaving the EU with or without a deal, or in fact leaving at all."

In the latest developments, the European Union insisted a "fully workable and legally operational" solution to the Irish border issue must be included in any Brexit deal, after suggestions from the UK that the details could be worked out after October 31.

The EU's chief negotiator Michel Barnier and Brexit Secretary Steve Barclay met for talks described as "serious, detailed discussions" by the latter.

The UK has put forward a "first set of concepts, principles and ideas", Brussels said, but it was "essential" that a way of avoiding a hard border with Ireland was included in the Withdrawal Agreement.

UK Prime Minister Boris Johnson has insisted that the backstop - the contingency plan which will keep the UK closely tied to EU rules if no other measures are in place to avoid a hard border - must be scrapped.

Barclay suggested the final details of alternative arrangements would not necessarily have to be agreed until December 2020, provided a deal can be reached.

But in a statement following the talks between Barclay and Barnier, the European Commission said: "It is essential that there is a fully workable and legally operational solution included in the Withdrawal Agreement.

"We remain willing and open to examine any such proposals that meet all the objectives of the backstop."

Their meeting came after Ireland played down the prospect of an imminent Brexit breakthrough, highlighting a "wide gap" between Johnson's position and that of the EU.

The euro stood at USD1.1007 at the European equities close, marginally lower than USD1.1050 late Thursday.

Stocks in New York were higher at the London equities close on hopes of progress in upcoming US-China trade talks.

The DJIA was up 0.3%, the S&P 500 index up 0.2% and the Nasdaq Composite up 0.1%.

With a delegation from China in the US to prepare for higher-level negotiations next month, investors hope the economic giants can find a solution to their tariffs row which have weighed on the global economy for a year.

The two sides are set to resume high-level trade talks in early October.

Stock markets have enjoyed a broadly positive September due to hopes for the talks, with both sides appearing to offer conciliatory measures and sounding less confrontational than in July and August.

Moreover, equities have been buoyed by central bank shifts towards easier monetary policy, although there was some disappointment in the US Federal Reserve's lack of forward guidance earlier this week for further interest rate cuts.

"Stock markets remain supported with US equity indices near record levels after a week of central bank bonanza where the message was loud and clear: global interest rates will remain at or near record lows for the foreseeable future," said Forex.com analyst Fawad Razaqzada.

Brent oil was quoted at USD64.72 a barrel at the equities close. firm against USD64.51 at the close Thursday.

US President Donald Trump is imposing additional sanctions on Iran after being presented with military options for potential retaliatory action, following the attack on Saudi Arabia oil facilities last week.

Iran denies being involved in the attack. The attacks and recriminations are increasing fears of an escalation in the region.

Gold was quoted at USD1,503.40 an ounce at the London equities close, flat against USD1,501.30 late Thursday.

The economic events calendar on Monday has manufacturing and services PMI readings from France, Germany and eurozone at 0815 BST, 0830 BST and 0900 BST respectively. Financial markets in Japan will be closed on Monday for the Autumnal Equinox Day holiday.

The UK corporate calendar on Monday has interim results from biopharmaceutical firm Faron Pharmaceuticals and microfinance lender ASA International.

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