FTSE 100 flat as Brexit deal hopes for Boris Johnson and Ursula von der Leyen trigger rebound in sterling

The FTSE 100 was set for a flat start today as investors digested the impact of the EU and Britain’s extension to deadlines on the Brexit trade talks.

Shares were being called down 7.5 points by IG Index and down 25 by CMC Markets at 6543.98  although traders stressed such modest moves could reverse by the time markets open.

The pound rose strongly today in early trading on relief that the talks had not been abandoned with no deal after Boris Johnson spoke with EU commission president Ursula von der Leyen.

Against the dollar, it rose as much as 1.2%.

That could explain some of the weakness in the FTSE 100, where most stocks are reliant on dollar earnings, and so benefit from a weaker pound when those profits are converted back into sterling.

Today’s gains in the UK currency offset  some of last week’s 1.6% tumble in the currency when it was looking likely that there would not be a deal.

JPMorgan economist Malcolm Barr spoke for many in the City when he continued in his belief that it should be possible for both sides to agree a design they could both live with. However, he said it was a relief that the talks at the weekend had not just been going through the motions rather than a genuine attempt at compromise.

“While there is plenty of rhetoric on both sides, the area of disagreement seems narrow and the sides are reported to be engaging with it creatively,” he said.

Jefferies economists pointed out that, even if there is a deal, it will still be a hard Brexit with severe disruption. 

New problems are occurring to sectors on a regular basis, such as lawyer’s recent realisation that they will not be able to carry out EU work remotely from the UK. 

For a lawyer to have a practicing certificate in Ireland so as to have access to EU work, they will have to live there.

Markets were not just focusing on Brexit. Uncertainty over a Covid-19 stimulus deal in the US continues to dog share prices. 

There had been hopes Democrats and Republicans would be able to come to an agreement on a smaller bailout than they have previously failed to agree. However, talks remain deadlocked with a year-end deadline fast approaching.

The prospect of Pfizer’s vaccine rolling out in the US this week holds out some hope for global investors, however, and that seems to have lifted spirits in Asia this morning, where trading started off moderately positively.

On stock specific news, National Grid was among energy transmission companies feeling the wrath of environmentalists today who claimed it should not be boasting its ESG credentials. National Grid, along with other gas pipeline operators in Europe, are using a loophole to market themselves to investors as low-carbon businesses, the Institute for Energy Economics and Financial Analysis said.

Where upstream and downstream gas and oil companies have to include the end use of their products by customers when accounting for their carbon emissions, pipeline companies do not, the report claimed.

This was, it said, due to weakness in guidance by the Carbon Disclosure Project that sets rules for carbon accounting, which “allows transmission system operators to mislead investors who are searching for greener investment opportunities.”

Shares in AstraZeneca may fall after reports in The Times suggested it would have to improve terms of its planned $39 billion takeover of Alexion Parmaceuticals in the US.

The deal agreed by both sides’ boards on Saturday is in a mixture of cash and shares, offering $175 a share, but analysts at SVB Leerink said it may have to up the bid to $200 to persuade Alexion shareholders.

AstraZeneca wants to buy the business for its rare diseases skills. The Boston-based operator would deepen its immunology focus and give it a pipeline of experimental drugs in the field.

Such a big takeover marks a turnaround for the group which itself in 2014 successfully spurned a takeover from Pfizer.

Alexion has been coming under pressure from hedge fund Elliott.

Big takeovers such as this nearly always cause the buyer’s shares to fall in a reflection of the risks attached to any major takeover.

However, that could be muted by the expectation that an Alexion deal may persuade chief executive Pascal Soriot to cancel rumoured thoughts about leaving. He has overseen an 87% rise in the share price since fighting off Pfizer.

Alexion shareholders would end up owning 15% of the enlarged group if it goes through on Saturday’s terms.

ABFoods could come under pressure on reports that its Primark retail division is looking at bidding for parts of Arcadia. It is one of around 40 parties said to have expressed an interest in bidding in an an auction being run by administrators Deloitte. Brands include Burton, Dorothy Perkins, Wallis and Miss Selfridge as well as Top Shop and Top Man.