(Alliance News) - Stocks in London are called for a muted start Friday, with UK Prime Minister Boris Johnson warning there is a "strong possibility" that the UK will fail to broker a trade agreement with the EU.
Johnson ordered his cabinet to prepare for no-deal at the end of the Brexit transition period, which is in just 20 days.
The prime minister's warning came after his dinner with European Commission president Ursula von der Leyen in Brussels on Wednesday failed to produce a breakthrough.
In early UK company news, jet-engine maker Rolls-Royce said its restructuring plans are on track, InterContinental Hotels has agreed a further waiver and relaxation of existing banking covenants, and energy firm Calisen has agreed to a GBP1.43 billion takeover by infrastructure funds led by BlackRock.
IG futures indicate the FTSE 100 index is to open 0.14 points higher at 6,599.90 on Friday. The blue-chip index closed up 35.47 points, or 0.5%, at 6,599.76 Thursday.
At this level the FTSE 100 will have gained 0.8% over the past 5 days.
The pound was quoted at USD1.3318 Friday morning, up from USD1.3285 at the London equities close Thursday.
"It was another mixed session for European stocks yesterday, with the FTSE 100 outperforming on the back of a slightly weaker pound, but it was notable that we saw heavy falls in UK banks and other stocks with a domestic focus on no-deal Brexit concerns," CMC Markets analyst Michael Hewson said.
Johnson said the "deal on the table is really not at the moment right", saying it would leave the UK vulnerable to sanctions or tariffs if it did not follow the bloc's new laws.
He said the current proposals would keep the UK "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.
But Johnson said he told his Cabinet on Thursday evening to "get on and make those preparations" for a departure without a deal in place, or in an "Australian relationship" as he puts it.
"I do think we need to be very, very clear, there is now a strong possibility - a strong possibility - that we will have a solution that is much more like an Australian relationship with the EU than a Canadian relationship with the EU," Johnson said.
CMC's Hewson continued: "The pound did come under pressure but overall, there still seems to be some optimism that pragmatism will prevail as the December 31 deadline gets closer, and the realisation slowly dawns of the potential economic damage that could ensue in the days after a no deal outcome. An outcome that in the current circumstances would simply heap economic pain on top of economic pain."
The euro was priced at USD1.2143, up from USD1.2119.
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%.
In the US, weekly jobless claims increased by far more than expected.
The Department of Labor showed initial jobless claims for the week to December 5 came in at 853,000, up sharply from 716,000 the week before. Consensus expectations, according to FXStreet, had seen the reading edging up more modestly to 725,000.
The latest jobless claims reading was the highest since registering 873,000 in mid-September. This still pales in comparison to the high of 6.9 million reached in late March, however.
CMC's Hewson noted the jobless claims raise the prospect that the US economy is "now starting to see an acceleration in economic weakness". He continued: "The lack of a new stimulus deal starts to act as an anchor around the ankle of the economic recovery since April. All the while US coronavirus cases have continued to rise."
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 is up 0.4% in late trade.
Against the yen, the dollar was trading at JPY104.03, down from JPY104.38.
Brent oil was quoted at USD50.58 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.
Axi's Stephen Innes said the rise in oil price has been fuelled by an expected faster demand in recovery on vaccine hopes.
He continued: "An unwavering dip-buying strategy envelops markets as the combination of OPEC+ quotas, which are expected to keep the market floating on an even keel through the petulant northern hemisphere winter and improving road fuel demand is seen as rising faster than expected with the emergency vaccine deployments globally. And this is without a US stimulus package, which could offer yet another bounce to oil prices."
In downbeat vaccine news, France's Sanofi and Britain's GlaxoSmithKline said Friday their Covid-19 vaccines will not be ready until the end of 2021, after interim results showed a low immune response in older adults.
"Sanofi and GSK announce a delay in their adjuvanted recombinant protein-based Covid-19 vaccine programme to improve immune response in older adults," a statement said, adding that the vaccine's potential availability had been pushed back "from mid-2021 to the fourth quarter of 2021".
In London, Rolls-Royce 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."
InterContinental Hotels has reached an agreement to further amend its revolving credit facility following an amendment in April this year.
The new amendment includes an additional waiver of the covenants at December 31, 2021, together with a relaxation to the covenants at June 30, 2022 and December 31, 2022.
The leverage ratio covenant has been amended to require net debt to Ebitda of less than 7.5-to-1 at June 30, 2022 and less than 6.5-to-1 at December 31, 2022.
"The covenant relaxations have been based on a theoretical severe downside scenario. The minimum liquidity covenant of USD400 million will continue whilst the amendments are in place and will be tested at December 31, 2021, June 30, 2022 and December 31, 2022," the hotel operator said.
Energy infrastructure asset manager Calisen said it has 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.
London estate agency Foxtons said its October and November revenue was up 2% year-on-year at GBP14.8 million. Within this, sales revenue increased by 11% to GBP5.4 million; lettings revenue was down 1% to GBP8.0 million; and mortgage broking revenue was down 14% to GBP1.3 million.
Foxtons noted group revenue for the eleven months to the end of November was down 15% year on year at GBP83.6 million.
For 2020, adjusted operating profit is expected between GBP1.0 million and GBP1.5 million, compared to a loss of GBP700,000 in 2019.
Foxtons also unveiled a GBP3.0 million share buyback programme, expected to end in March.
Gold was trading at USD1,833.60 an ounce, lower from USD1,836.95.
In the economic calendar for Friday, there is US producer prices at 1330 GMT.
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
