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(Alliance News) - Stalled Brexit talks remained the driver of trading in London at midday on Friday, with stocks and sterling struggling as traders peered over the precipice of a no-deal Brexit.
"With precious little time left to strike a deal, Brexit negotiations are looking unlikely to yield anything positive. Banks have been in the firing line, with the prospect of further economic weakness overshadowing the fact that they appear to be well prepared," IG market analyst Joshuan Mahony said.
The continued failure of the US Congress to pass an economic stimulus package was adding to the negativity among investors.
The FTSE 100 index was down 72.65 points, or 1.1%, at 6,527.11 on Friday midday. As a result of Friday's poor performance, the blue chip benchmark is on track to end the week down 0.2%, having been on course for a positive week.
The mid-cap FTSE 250 index was down 184.20 points, or 0.9%, at 19,571.90. The AIM All-Share index was down 0.8% at 1,061.50.
The Cboe UK 100 index was down 1.3% at 650.17. The Cboe 250 was down 1.3% at 16,855.66. The Cboe Small Companies was 1.0% lower at 11,234.81.
In mainland Europe, the CAC 40 in Paris was down 1.5%, while the DAX 30 in Frankfurt was 2.1% lower.
Mahony said: "Sterling weakness has done little to boost the FTSE 100 this morning, with vaccine optimism fading in favour of a more pessimistic tone as Brexit talks approach their conclusion. Hopes that the US would implement a stimulus package before year-end have been dashed once again, with Nancy Pelosi stating that talks would likely continue into Christmas. While the ongoing battle against Covid remains on the right track, the inability to strike a deal on either side of the Atlantic could soon undermine hopes that stocks will stage a welcome Santa rally after a difficult year."
The pound was quoted at USD1.3184 Friday midday, down a full penny from USD1.3285 at the London equities close Thursday.
UK Prime Minister Boris Johnson has warned there is a "strong possibility" the UK will fail to broker a trade agreement with the EU as he told the nation to prepare for no-deal at the end of the Brexit transition period.
Johnson said the current proposals would keep the nation "kind of locked in the EU's orbit" but insisted negotiators would "go the extra mile" in trying to get a treaty in time for December 31.
European Commission President Ursula von der Leyen warned the bloc's leaders at a summit, the "situation is difficult" with major obstacles still in place.
"From a market standpoint, the value-led recovery seen over the past month is coming into question, with the FTSE 250 outperformance likely to reverse if a no-deal Brexit comes back to hurt domestically-focused firms. From an FX perspective, the fact that sterling is higher than the 2016 low point highlights that markets are increasingly becoming accustomed to the idea of a no-deal exit which had previously been touted by Boris Johnson as 'a million-to-one' outcome," IG's Mahony added.
Amid the potential for a no-deal Brexit, blue-chip banks in London were struggling, with UK-focused high street lenders NatWest down 6.2%, Lloyds 5.3% and Barclays 4.8%.
CMC Markets analyst David Madden said: "Banks have had to set aside vast sums of money for bad-debt provisions as a result of the pandemic and the economic shock of a no-deal situation could see a further spike in credit loss provisions. In addition to that, lending rates are likely to be squeezed further as the Bank of England might introduce negative interest rates, something it has mentioned a few times in recent months."
Despite the disruption, the Bank of England said UK lenders can deal with a shock that is much worse than economic problems caused by Covid-19.
The central bank's Financial Policy Committee, tasked with safeguarding the financial system, added that Britain's major banks were capable of absorbing GBP200 billion in credit losses.
The country's biggest lenders have enough capital buffers to get them through the crisis, after building them up since the 2008 financial crisis.
The UK central bank's Financial Policy Committee also said that it would allow lenders to reduce their so-called countercyclical capital buffer - a type of rainy day fund - to 0% for at least another year.
The euro was priced at USD1.2116 at midday in London on Friday, down slightly from USD1.2119 late Thursday. Against the yen, the dollar was trading at JPY104.09, down from JPY104.38.
In the US, Wall Street futures painted a similarly bleak picture, with eyes on Capital Hill, where US lawmakers continue to wrangle over a stimulus bill, with disappointing jobless claims figures providing further impetus for more aid.
The Dow Jones Industrial Average is called down 0.6%, the S&P 500 down 0.7% and the Nasdaq Composite is expected to open 0.7% lower.
In London, Rolls-Royce was anchored to the bottom of the FTSE 100, down 6.7%. The jet engine maker said its restructuring plans are on track to deliver its targeted GBP1.3 billion cost savings by 2022; with at least GBP1 billion of near-term cash cost mitigations confirmed for 2020.
Part of this, Rolls has previously said, involves cutting at least 9,000 jobs by the end of 2022, with more than 5,500 being cut before the end of 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 Covid-19. Rolls said the unit saw a period of rapid growth and new engine programme launches, while R&D investment demands were falling and returns improving.
Despite the pandemic getting in the way of this, Rolls said: "The fundamental drivers of having a more efficient business with stronger margins and better returns remain intact and position us well for the eventual rebound."
The aerospace firm said its Defence unit has remained "resilient", with a strong order book and 2021 forecast sales "well covered".
Rolls-Royce shares have tripled since the start of October amid vaccine-driven hopes of a revival in the aviation market but remain down 49% so far in 2020.
In the midcaps, Calisen has agreed 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. Calisen shares were up 25% at 257.90p on Friday midday in London.
The takeover, by Coyote Bidco Ltd, is considered "fair and reasonable" by Calisen's board, who intend to unanimously recommend the offer. The companies said support has been received from shareholders representing 73.6% of its equity.
Coyote is a consortium made up of two parts: Global Energy & Power Infrastructure Fund III and a series of West Street funds, which are managed by Goldman Sachs.
Tui was down 7.8%. UK holidaymakers on the Canary Islands have hit out at new quarantine rules which have disrupted their Christmas plans.
People arriving in the UK from the popular Spanish islands from 4am on Saturday must self-isolate for 14 days.
Holiday operator Tui said it has around 5,000 UK holidaymakers on the islands, with a further 800 booked to fly out on Friday morning.
Brent oil was quoted at USD49.84 a barrel midday Friday, falling under the USD50 mark and pulled back from USD50.83 a barrel at the London equities close Thursday.
The price of a barrel of Brent broke through the USD50 barrier for the first time in nine months on Thursday afternoon. Brent started the year trading around the USD66 level, rising to just over USD70 in early January before getting thumped by the Covid-19 pandemic.
Oanda's Craig Erlam said: "The near-term outlook for the global economy is far from rosy but OPEC+ addressed this last week in paring back planned production increases from January and instead tapering far more gradually over the opening months of the year. It's never that straightforward and they're far from out of the woods but a hold above USD50 would be very encouraging."
Gold was trading at USD1,831.70 an ounce, lower from USD1,836.95.
Still to come Friday, there are US producer prices at 1330 GMT.
By Paul McGowan; paulmcgowan@alliancenews.com
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