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London open: Stocks drops as sterling gains on Brexit optimism
London stocks fell in early trade on Tuesday, dragged lower by a stronger pound after Prime Minister Theresa May secured “legally binding” changes to her Brexit deal from the EU.
At 0845 GMT, the FTSE 100 was down 0.5% to 7,093.18, while the pound was up 0.6% against the dollar to 1.3224, having surged overnight to within a breath of $1.33 after May secured changes to the deal designed to stop the Irish backstop from becoming permanent. Against the euro, sterling was up 0.4% at 1.1735, having peaked at 1.18, which was its best level since spring 2017.
Following last-minute talks with European Commission president Jean-Claude Juncker in Strasbourg on Monday night, May agreed a “joint legally binding instrument” on the withdrawal agreement which could be used by the UK if the EU tried to keep the country tied to the backstop indefinitely.
There was also a joint statement about the future relationship between the UK and the EU, which commits to replacing the backstop by December 2020.
May’s deal will be put to the test later in the day when MPs take part in the second ‘meaningful’ vote.
Spreadex analyst Connor Campbell said: “Though the expectation remains that May will lose the vote, the size of the loss could now be far less than it would have been without these changes, which…well, it’s something, and could pave the way for a third, finally successful, vote, even if the EU is pretty damn adamant it doesn’t want to come back to the negotiating table.”
Much will depend, said Russ Mould at AJ Bell, on attorney general Geoffrey Cox’s interpretation of the EU’s new assurances that the UK will not be trapped in a customs union by the backstop agreement, as this is one of the key objections of Brexiteers.
Cox is expected to deliver his verdict mid-morning, with MPs having a deadline of 1030 GMT to submit amendments to May’s deal, before grilling Cox and Brexit Secretary in the Commons later in the morning. The main vote is expected to be at around 1900 GMT.
“If, against all the odds, May’s deal squeaks through then Wednesday could see a relief rally for sterling as well as UK-focused sectors like real estate, housebuilding and banking,” Mould said, adding that a defeat was still the “more likely scenario”.
In equity markets, AstraZeneca was among the fallers as Goldman Sachs reiterated its ‘sell’ rating on the pharmaceuticals stock, saying the shares are now pricing in the perfect execution going forward.
Equiniti was sharply lower despite a set of in-line final results, with broker Liberum noting disappointment over the three-month delay to the operational separation of EQ US from Wells Fargo.
Cairn Energy was weaker as the oil and gas exploration and development company said it swung to a net loss in 2018.
Domino’s Pizza was in the red after it reported a drop in annual profit following a mixed year, as the company said “growing pains” hit its international business.
Security services firm G4S was under the cosh as it reported flat underlying profits for 2018 but a positive outlook for 2019.
On the upside, housebuilders and banks were standout gainers amid Brexit optimism, with Persimmon, RBS, Lloyds, Barratt Developments and Berkeley all higher. Lloyds was also boosted by an upgrade to ‘neutral’ at Goldman Sachs.
Sirius Minerals racked up strong gains after saying it has received a conditional proposal from a major global financial institution in respect of the “stage 2” financing that would fund its Yorkshire polyhalite mine through to production.
In other broker note action, Standard Chartered was downgraded at AlphaValue, while Standard Life Aberdeen and Antofagasta were both downgraded by RBC Capital.
