Stocks

FTSE lags European bounce as Brexit breakthrough hopes lifts pound

Reuters Milan | Updated on January 09, 2018 Published on November 29, 2017

Britain's FTSE fell on Wednesday, lagging a broad-based rebound in European shares as reports of a breakthrough in Brexit talks lifted sterling, hurting the internationally exposed index.

The FTSE was down 0.6 per cent by 0849 GMT, while the pan-European STOXX 600 benchmark climbed 0.6 per cent to its highest level in more than two weeks, buoyed by strength among financial stocks and gains across all sectors.

Brexit 'divorce bill'

Britain has offered to pay much of what the EU was demanding to settle a Brexit “divorce bill", bringing the two sides close to agreement on a key obstacle to opening talks on a future free trade pact, EU sources had said on Tuesday.

Sterling surged to a two-month high against the dollar, helping send shares in big internationally-exposed, dollar earning FTSE companies such as British American Tobacco, Diageo and GlaxoSmithKline down more than 1 per cent.

“Following last night's jump, (the pound) continued its rise today on hopes of a significant Brexit breakthrough. Shorts are coming out as the squeeze comes on but will the rally last? Its down to the politics again, with various risks to the bullish case still unresolved,” said ETX Capital analyst Neil Wilson

“Nevertheless it may be time to turn cautiously optimistic on sterling,” he said.

In turn the more domestically exposed FTSE Mid 250 index , which benefits from a stronger pound, rose 0.3 per cent. The British mid cap index generates only half of its sales outside the UK, against two thirds for the FTSE.

UK mid-cap Cineworld however fell 13.8 per cent after news that cinema chain is in talks to acquire US peer Regal Entertainment for about $3.6 billion in cash. Cineworld said it would finance its bid through a mix of debt and a “material” rights issue.

Among the biggest movers on the STOXX 600 was Britvic, up 4.6 per cent to an all time high, following results.

Osram Licht rose 4.3 per cent after Barclays upgraded the stock to “overweight” from “equal weight", citing strong growth expectations for its Opto Semiconductors unit.

Elsewhere, among chipmakers Dialog Semiconductors and Infineon fell slightly, shrugging off a positive earnings update from US peer Marvell Technology.

The sector was hit earlier this week after Morgan Stanley downgraded Samsung Electronics on worries the memory chip boom could peak soon.

A top faller was Sonova, down 2.8 per cent, hit by a Morgan Stanley downgrade to underweight.

Broader market sentiment was also lifted by signs of progress on US tax cuts, which offset caution following another missile test by North Korea.

In spite of Wednesday's bounce, the STOXX 600 is set to end November with a loss, having fallen around 2 per cent so far this month as investors have been taking profits and earnings growth slowed compared to the previous two quarters.

According to the latest Thomson Reuters report, third quarter earnings for the index are expected to increase 1.7 per cent from a year earlier. Excluding the energy sector, earnings are expected to decrease 2.2 per cent.

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Published on November 29, 2017
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