Monday 7 December 2020 12:27 pm

FTSE 100 outperforms Europe as Brexit hits sterling

Brexit uncertainty paradoxically helped the FTSE 100 outperform European markets, as a tumbling pound boosted the index.

The FTSE was 0.4 per cent higher shortly after midday, trading at around 6,577 points. 

Read more: Pound slides as investors fret over Brexit talks

Sterling was down 1.2 per cent to $1.328, having touched a two-year high on Friday, as investors worried about the lack of progress in Brexit talks. 

Yet the pound’s fall helped the FTSE 100 by making the overseas earnings of the index’s multinationals worth more in relative terms.

In Europe, Germany’s Dax slipped 0.3 per cent and France’s CAC 40 was down 0.7 per cent as investors were pulled in different directions by coronavirus worries and vaccine hopes. The Europe-wide Stoxx 600 was down 0.3 per cent.

US stocks were set to open lower. Coronavirus cases have hit record highs in recent days in the US, while California has implemented strict new lockdown rules.

Markets jittery over Brexit but FTSE climbs

The UK and the EU resumed Brexit talks today. There are just days to go before a deal must be reached if it is to be implemented before the end of the transition period on 31 December.

Markets have since the summer been hopeful that a deal would be reached, helping the pound. Yet they have checked themselves today.

The pound’s fall came as traders moved to cover positions in case of a no-deal Brexit, which would lead to higher tariffs and damage the UK economy, at least in the short-run.

Yet it helped the FTSE 100’s biggest international firms. British American Tobacco was up 4.3 per cent, while fellow tobacco company Imperial Brands rose three per cent.

Rolls Royce, drinks-maker Diageo and BAE systems were all around two per cent higher.

Nonetheless, many investors maintained that an agreement would be reached. 

Read more: Brexit: Michel Barnier tells MEPs that Wednesday is final deadline for deal

“I still think this ends in some sort of agreement,” said John Hardy, head of FX strategy at Saxo Bank.

He predicted that “at worst” there would be “some vague agreement in principle that is actually a fudge to continue negotiating final terms”.