The FTSE 100 dropped as investors worried over new coronavirus restrictions and the pound soared amid hopes of a Brexit deal, hurting firms’ overseas earnings.
London’s blue-chip index opened flat but had tumbled 1.3 per cent by late morning to 5,814 points. The FTSE 250 was down 0.3 per cent.
The pound jumped 1.4 per cent against the dollar to $1.313. Positive comments from the EU’s chief Brexit negotiator boosted the currency.
Yet the stronger pound weighed on the FTSE. It makes the overseas earnings of the index’s multinational companies worth less in relative terms.
Germany’s Dax index was 0.6 per cent lower, while the continent-wide Stoxx 600 had slipped 0.7 per cent.
“Market sentiment has turned sour in Europe as investors are increasingly concerned about the sharp rise in new Covid-19 cases,” said Milan Cutkovic, market analyst at trading platform Axi.
The major Wall Street indices were up between 0.5 and 0.7 per cent. They were buoyed by residual hopes that a stimulus deal might be reached in the US.
Industrials and miners weigh on FTSE 100
The rising pound hit the FTSE 100’s more internationally focused stocks. British Airways-owner IAG was the biggest faller, falling 4.7 per cent.
Miner Fresnillo tumbled around three per cent. Meanwhile, oil giants BP and Shell fell roughly two per cent as the Brent crude oil price slipped.
FTSE 100 investors had some UK economic data to chew on this morning. Inflation rose to 0.5 per cent last month after the Eat Out to Help Out scheme ended.
UK government borrowing unexpectedly picked up to £36.1bn in September, the Office for National Statistics said. It meant the pile of public debt hit its highest level as a proportion of GDP since 1960.
Pound soars on Brexit hopes
The pound’s recent rally continued, with the currency jumping to its highest level since August. It was also up 1.1 per cent against the euro at €1.106.
Despite the UK government’s tough rhetoric, traders believe the UK and EU will strike a free-trade agreement. The discussions have been one of the major influencing factors on sterling.
“The pound has been a top riser in the FX markets so far in today’s session,” said Fawad Razaqzada, market analyst at Thinkmarkets.
In particular, EU negotiator Michel Barnier’s comments that a trade deal was “within reach” boosted sterling.
“The pound tends to respond more profoundly to comments by top EU officials, rather than UK,” Razaqzada said. He said this was because “everyone knows Boris Johnson and co are merely talking tough because it is part of their negotiation tactics”.
All eyes on US over stimulus
The will-they-won’t-they saga of US stimulus talks continued. House speaker Nancy Pelosi yesterday said she’s hopeful that a stimulus deal could be reached this week.
Yet White House chief of staff Mark Meadows cautioned there was still a fair amount of work to be done, however.
Despite the uncertainty, US stocks opened higher. The S&P 500 was up 0.6 per cent and the tech-heavy Nasdaq climbed 0.8 per cent.
Fiona Cincotta, market analyst at City Index, said: “As the White House and Congress move closer towards a new covid rescue package, demand for riskier assets has picked up whilst the safe-haven US dollar is coming under pressure.
Yet Cincotta said that the FTSE 100 and other indices will remain focused on “concerns over rising covid cases and tighter lockdown restrictions”.