UK shares end long winning streak on fears PM May will go for ‘hard’ EU Brexit

Sterling stumbles to three-decade low against US dollar; May’s Brexit speech set for Tuesday

PUBLISHED : Tuesday, 17 January, 2017, 1:44am
UPDATED : Tuesday, 17 January, 2017, 1:44am

Britain’s top share index ended its record 14-day winning streak on Monday, finishing down for the first day since December 21, as banking stocks slumped on ‘hard Brexit’ worries ahead of Theresa May’s speech on Tuesday.

The blue chip FTSE 100 index was down 0.2 per cent by 1637 GMT, having touched a fresh all-time high of 7,354.14 points earlier in the session.

The more domestically-exposed FTSE 250 index fell 0.4 per cent.

Sterling dropped below US$1.20 to a three-decade low against the dollar, barring its October “flash crash”, following media reports that Prime Minister May will signal a “hard” Brexit for Britain from the European Union.

A “hard” Brexit scenario would prioritise immigration controls and bilateral trade deals that would see Britain leaving the EU’s single market and customs union.

A weak sterling benefits the FTSE 100’s international, dollar-earning firms, giving them a currency-related accounting boost. In 2016, the FTSE 100 was the best performer among major regional indexes in Europe, gaining more than 14 per cent.

“It certainly feels like the FTSE is currency led at the moment, so we may see some currency movement on the downside ,” said Mark Ward, head of trade execution at Sanlam Equities.

“Although, again, it does feel like we are now reaching extreme bear levels in Sterling, so any hint of remaining in the customs union could prompt some pound short covering and stage a decent rally.”

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Investors also anticipate news of plans for a transition deal with the EU to ease businesses through the process of adapting to a new trade regime once Britain formally exits.

While the weak sterling has been fuelling successive record highs for the index, banks, which had contributed to the FTSE’s rally, pared back on worries over the consequences of a ‘hard’ Brexit for their ability to sell products in the EU.

Insurance stocks were the worst performers, down 1.7 per cent, with Prudential and Standard Life both down more than 2 per cent.

Banking stocks also dragged on the index, with Royal Bank of Scotland bottom of the FTSE, down 2.8 per cent after Goldman Sachs downgraded it to “neutral” from “buy”. Lloyds Bank and Barclays were also in the red.

Mining companies were among the biggest risers among the blue chips, with Rio Tinto, Anglo American, and Glencore all up between 1.6 per cent to 2.1 per cent. Precious metals miners Randgold Resources and Fresnillo both rose around 1.6 per cent, helped by a firmer gold price.

US financial markets are closed on Monday for a holiday and will reopen on Tuesday.