Pound slips and stocks slump as no-deal Brexit fears resurface

The pound and U.K. stocks slipped on Wednesday, as U.S. President Donald Trump’s coronavirus warning and reports that ministers have given up hope of a Brexit trade deal scared investors.

The FTSE 100 UKX, -0.85% fell 0.8% in morning trading, while the more domestically-exposed FTSE 250 MCX, -0.17% slipped 0.1%.

Reports in The Telegraph newspaper that Britain is close to abandoning hope of a Brexit trade deal with the EU pushed sterling GBPUSD, -0.24% 0.6% lower in early trading, before the currency recovered to trade 0.2% down. The pound had hit six-week highs of $1.2749 on Tuesday. Losses for the pound would typically boost the FTSE 100 but mounting concerns over the coronavirus pandemic and escalating geopolitical tensions ensured it remained under pressure.

The U.K. government has also given up hope of a trade deal with the U.S. by the end of the year, the Financial Times reported.

Virus concerns had taken a back seat temporarily, as vaccine developments and the EU’s €1.8 trillion budget and coronavirus relief plan generated positive sentiment among investors in recent days. But the first White House daily briefing since April, as global cases continued to rise, shifted the mood, and Trump appeared to change his view on face masks, urging Americans to wear them and practice social distancing.

Escalating tensions between the U.S. and China added to the downbeat atmosphere, as China said its consulate general in Houston was ordered shut. China’s foreign ministry described it as an “unprecedented escalation.” The U.S. dollar USDCNH, +0.39% jumped against the Chinese yuan as a result.

Spreadex analyst Connor Campbell said Trump’s sudden change of stance explained the downbeat mood but that there were also other factors.

“It doesn’t help that bubbling away under the surface is further diplomatic discord between the U.S. and China — Beijing is outraged that Washington has forced China’s consulate in Houston to close down — and the ever-growing prospect of a no-deal Brexit. Evidence of bad times came as the FTSE and pound fell in tandem,” he added.

U.S. dollar weakness sent gold GOLD, 0.43% and silver SI00, +3.84% futures surging late on Tuesday, and both contracts continued higher on Wednesday.

Stocks in focus

Kingfisher KGF, +12.52% climbed more than 12%, after the do-it-yourself home improvement group reported strong second-quarter results as consumers stocked up on supplies to do work to their homes during lockdown. Like-for-like sales jumped 21.6% in the three months to July.

Melrose Industries MRO, -17.97% fell 18%, after the turnaround specialist said revenue fell 27% in the six months to June 30 and that cost reductions due to the pandemic would lead to job losses, adding that it won’t pay an interim dividend for 2020.



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