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(Alliance News) - Stocks in London look set to end the week on a sour note, with the mood dampened by UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen unable to make any headway in Brexit talks, making a no-deal closer than ever.
"In the absence of other major news - Brexit and US fiscal are all that is left, and today markets fret over a Brexit risk reset as time decay tick-tocks on a Friday for a Sunday announcement," Axi analyst Stephen Innes said.
The FTSE 100 index was down 59.75 points, or 0.9%, at 6,540.01 on Friday morning. At this price, the blue chip benchmark is up 0.3% from Monday morning.
The mid-cap FTSE 250 index was down 233.85 points, or 1.2%, at 6,540.01. The AIM All-Share index was down 0.5% at 1,064.42.
The Cboe UK 100 index was 1.1% at 651.47. The Cboe 250 was down 1.4% at 16,829.99. The Cboe Small Companies was 0.6% lower at 11,281.71.
Innes continued: "Despite ongoing Brexit discussions, a breakthrough remains elusive. UK Prime Minister Johnson said overnight the UK should be prepared to leave the EU without a deal and that there is now a strong possibility of a solution that is much more like an Australian relationship.
"Even though talks are said to conclude on Sunday, discussions could drag on further, especially if a fresh compromise on the key issues can be found. Still, a no-deal outcome seems increasingly viable on the back of recent comments."
In mainland Europe, the CAC 40 in Paris was down 0.9%, while the DAX 30 in Frankfurt was 1.0% lower.
The pound was quoted at USD1.3222 Friday morning, down from USD1.3285 at the London equities close Thursday.
"Jittery sterling longs continue to hammer that sell button into the London open as event time decay looms, and having a deal buster go sideways on a Sunday when the market is closed screams pare down long position risk ahead of the weekend," Innes commented.
The euro was priced at USD1.2129, up from USD1.2119.
Hargreaves Lansdown's Susannah Streeter said: "With the UK now looking like its hurtling towards a no-deal Brexit, investors should adopt the brace position for swings in sterling and shares in domestic focused companies. This morning the pound is struggling to rise above 1.095 against the euro with a distinct lack of direction before the fresh deadline of Sunday looms."
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".
East added: "The outlook remains challenging and the pace and timing of the recovery is uncertain. However, our actions have given us a strong foundation to deliver better returns as our end markets improve and we continue to drive our ambition of delivering more sustainable power to support the creation of a net zero carbon economy."
Blue chip banks were struggling in the morning session, with UK-focused high street lenders Barclays down 3.5%, NatWest 3.2% and Lloyds 2.5%.
Despite the disruption from a no-deal Brexit, 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 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.
This will give lenders confidence that they can reduce the buffer without then being required to jack it up when officials say so.
The committee also said that most risks of a potential no-deal Brexit to the UK's financial stability have been mitigated. The financial system has had time to prepare for potential Brexit outcomes.
Telecom giant BT Group and Vodafone were down 3.4% and 1.7%, respectively, after the UK Competition & Markets Authority launched in-depth investigation into the GBP31 billion mega-merger between rivals Virgin Media and O2.
Under a "fast-track" process, investigators from the CMA will look at whether the deal could lessen competition for UK customers of the mobile phone and broadband giants. Evidence will be submitted by the networks' parent companies, Liberty Global, which owns Virgin Media and Virgin Mobile in the UK, along with Telefonica which owns O2.
The CMA said it is "concerned that, following the merger, Virgin and O2 may have an incentive to raise prices or reduce the quality of these wholesale services, ultimately leading to a worse deal for UK consumers."
Previously the CMA blocked a merger between O2 and rival network Three, although it has previously waived through BT's deal with EE.
In the midcaps, energy infrastructure asset manager Calisen was up 25% after it agreed to a GBP1.43 billion takeover, with shareholders set to receive 261 pence per share.
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 takeover, by Coyote Bidco, is considered "fair and reasonable" by Calisen's board, who intend to unanimously recommend the offer.
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.
The first half, Global Energy & Power, is acting on behalf of its investment manager BlackRock Alternatives Management and its co-investor Ninteenth Investment Co, an indirectly wholly-owned subsidiary of Mubadala Investment Co PJSC. The second half of the consortium is made up of West Street International Infrastructure Partners III AIV, West Street Global Infrastructure Partners III AIV, West Street European Infrastructure Partners III AIV, Broad Street Credit Holdings Europe Sarl and GLQ Holdings.
"Bidco believes that Calisen represents an attractive opportunity to invest in the energy transition sector via one of the largest owners of smart meters in the UK with strong growth potential and opportunities to expand into adjacent sectors," Coyote said.
In the US on Thursday, Wall Street ended mixed, with the Dow Jones Industrial Average losing 0.2% and the S&P 500 down 0.1%, but the tech-heavy Nasdaq Composite advanced 0.5%.
Stalled stimulus talks in the US continue to weigh on equities. A major headache for investors is US lawmakers' inability to agree a new stimulus, with both sides still blaming each other just weeks before they break up for the new congressional session.
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.
The Japanese Nikkei 225 index closed 0.4% lower on Friday. In China, the Shanghai Composite lost 0.8%, while the Hang Seng index in Hong Kong gained 0.4%.
Against the yen, the dollar was trading at JPY104.08, down from JPY104.38.
Brent oil was quoted at USD50.30 a barrel early Friday, 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.
Gold was trading at USD1,832.80 an ounce, lower from USD1,836.95.
Still to come Friday, there is US producer prices at 1330 GMT.
By Paul McGowan; paulmcgowan@alliancenews.com
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