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(Alliance News) - The FTSE 100 ended the week on a sour note heading into a crucial weekend for post-Brexit trade talks between the UK and EU.
"We are starting to see the first meaningful de-risking from investors amid concern over Brexit. Flows are skewed to the sell side, notably in domestic UK names with banks particularly affected. It looks like equity markets are starting to think about the prospect of a 'no deal' Brexit as the market turns away from riskier assets into a mission-critical Brexit weekend," said Stephen Innes at Axi.
The FTSE 100 index closed down 53.01 points, or 0.8%, at 6,546.75 on Friday - though ended just 0.1% lower for the week.
The FTSE 250 ended down 133.95 points, or 0.7%, at 19,622.15 - down 2.8% for the week - and the AIM All-Share closed down 8.60 points, or 0.8%, at 1,061.18, closing the week 0.7% lower.
The Cboe UK 100 ended down 1.0% at 652.54, the Cboe UK 250 also closed down 1.0%, at 16,904.86, and the Cboe Small Companies ended down 1.4% at 11,181.63.
European Commission President Ursula von der Leyen has said gaps remained on fishing rights and the level-playing field measures aimed at preventing the UK undercutting the EU on standards and state subsidies.
Her comments came after UK Prime Minister Boris Johnson warned there is a "strong possibility" the UK will fail to broker a trade agreement and told the country to prepare for no-deal at the end of the transition period this month.
Chief negotiators Michel Barnier and David Frost are continuing talks in Brussels after Johnson and von der Leyen agreed at a dinner on Wednesday to resume negotiations. They said they would make a decision on the future of the talks by the end of the weekend.
The pound was quoted at USD1.3217 at the London equities close Friday, slipping from USD1.3285 at the close on Thursday.
In London, domestically-exposed blue-chip banks ended amongst the worst performers amid Brexit worries. Natwest ended down 6.7%, Lloyds Banking down 4.5% and Barclays down 4.0%.
This came despite the UK banking regulator giving banks the green light to restart paying dividends and banker bonuses following the pandemic. In a statement on Thursday, the PRA said the watchdog believes that lenders are now in a strong enough position to withstand a hit to the economy more severe than currently expected.
Further, Bank of England has said banks in the UK can deal with a shock that is much worse than economic problems caused by Covid-19 and still continue to lend. The central bank added that ahead of a potential no-deal Brexit, most risks to the UK's financial stability have been mitigated, but warned that "some disruption to financial services could arise".
However, David Madden at CMC Markets said fears of a no-deal Brexit scenario for banks are "too great" to find solace in the dividend news.
"Banks are the lifeblood of an economy so any shock to the economy because of no deal situation is likely to be felt by the banks," said Madden.
In European equities on Friday, the CAC 40 in Paris ended down 0.8%, while the DAX 30 in Frankfurt ended down 1.4%.
The euro stood at USD1.2110 at the European equities close Friday, down slightly against USD1.2119 at the same time on Thursday.
Against the yen, the dollar fell to JPY103.90 compared to JPY104.38 late Thursday.
Stocks in New York were in the red at the London equities close, with the Dow Jones down 0.4%, the S&P 500 index down 0.7%, and the Nasdaq Composite down 0.9%.
Axi's Innes said Friday's bad mood has been compounded by a lack of US stimulus.
He said: "In truth, the headlines on the US fiscal stimulus are all too familiar. But there is little sign of any movement in resolving divisions over the primary components...Given these talks have been running since July, the market may be bored to tears, but if the stimulus door slam shut before Christmas,it could still change the mood music from Joy to the World to Jingle 'Hell's Bells'."
Senate Majority Leader Mitch McConnell has given his backing to a USD916 billion plan put forward by the White House but House Speaker Nancy Pelosi has thrown her weight behind a slightly smaller, bipartisan proposal.
With millions of unemployed workers facing a bleak Christmas, Pelosi said lawmakers may stay in Washington through the holiday to pass a new bill.
"We'll see how it goes. But we cannot leave here without having a piece of legislation," Pelosi told reporters on Thursday.
There was better news on the European stimulus front, as EU leaders agreed an ambitious target for cutting greenhouse gas emissions after unlocking the bloc's landmark budget and coronavirus recovery fund at a marathon summit.
Europe's EUR1.8 trillion budget and coronavirus recovery package had been blocked by Hungary and Poland over an attempt to link the disbursement of funds to respect for the rule of law. The stand-off risked delaying the recovery fund well into next year, just as a second wave of the coronavirus pandemic was punishing the European economy, but on Thursday the leaders came to a compromise that allowed the package to go through.
Turning back to the London Stock Exchange, Rolls-Royce shares slumped 7.9%.
"Another perfect example of 'buy the rumour, sell the news' is Rolls-Royce, which has shed 7% today after its latest trading statement. Having doubled from the November low, the shares were rather priced for perfection, or at least for a bout of good news, which was distinctly lacking from today's report," said Chris Beauchamp, chief market analyst at IG.
Rolls-Royce Holdings said its restructuring plans are on track to deliver its targeted GBP1.3 billion cost savings by 2022, and confirmed at least GBP1 billion of near-term cash cost mitigations for 2020.
Chief Executive Warren East said: "We have taken decisive actions to protect and reposition our business in difficult and uncertain trading conditions, including the impact from a second wave of Covid-19. We have made rapid progress on our restructuring programme and the consolidation and reorganisation of our Civil Aerospace footprint is well underway."
The jet-engine maker said the benefits from improving its Civil Aerospace business have been "delayed" due to the impact of the Covid-19 pandemic. Rolls said the unit saw a period of rapid growth and new engine programme launches, while research and development investment demands were falling and returns improving.
Oil majors gave back gains racked up on Thursday after the price of a barrel of Brent oil topped the USD50 mark for the first time since early March.
BP shares closed down 3.3% while Royal Dutch Shell 'A' and 'B' shares ended down 2.8% and 3.5% respectively. Brent oil was quoted at USD50.04 a barrel at the London equities close Friday from USD50.83 late Thursday.
Gold was quoted at USD1,843.56 an ounce against USD1,836.95 at the close on Thursday.
Calisen shares surged 25% after agreeing to a GBP1.43 billion takeover offer by infrastructure funds led by BlackRock.
The Manchester-headquartered provider of smart energy meters said Friday that its board has agreed unanimously to the offer, with shareholders set to receive 261 pence per share in cash. Calisen closed at 206.60p each in London on Thursday, and the deal represents a 50% premium to the firm's three-month volume weighted average closing price as of Thursday of 174p.
The bidders said they were particularly attracted by Calisen's Lowri Beck installation, meter reading and maintenance arm, which it had acquired back in August 2019. "Calisen's integrated service provides an end-to-end metering offering," they said.
For Monday, the UK corporate calendar holds full-year results from ten-pin bowling operator Hollywood Bowl and a trading statement from staffing firm SThree.
In Monday's economic calendar, there are Rightmove UK house prices at 0001 GMT and Japanese industrial production at 0430 GMT, with eurozone industrial production at 1000 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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