FTSE 250 closes at 10-month high amid Brexit deal hopes – as it happened

Graeme Wearden

from on 2020-12-24 14:42 (#5C1G5)

Rolling coverage of the latest economic and financial news, as the London stock market closes for Christmas

4.23pm GMT

Although businesses will be relieved to avoid a no-deal crisis, they have just a few days until the withdrawal agreement ends (including Christmas!)

Paul Everitt, chief executive of ADS (the Aerospace, Defence, Security and Space trade body) says getting ready will be difficult':

The UK aerospace, defence, space and security industries welcome the agreement of a deal on the UK's future relationship with the EU. A deal provides the best framework for our relationship with European allies and industrial partners.

We recognise the deal does not meet all our ambitions and will examine the full legal text to ensure priority areas including aviation safety and chemicals regulation, customs and border control, and Northern Ireland are appropriately addressed.

We welcome today's agreement of a new EU-UK trading agreement, which provides a platform for our future relationship. We await the details to ensure this deal works for all automotive goods and technologies, including specifics on rules of origin and future regulatory co-operation.

A phase-in period is critical to help businesses on both sides adapt and efforts should now be sustained to ensure seamless implementation, with tariff-free trade fully accessible and effective for all from day one.

4.17pm GMT

A late reminder that the pound remains rather weaker than in 2016, despite strengthening in recent months:

...note that sterling still 9% down vs dollar than on the date of the referendum pic.twitter.com/tENSQun41R

4.12pm GMT

Seema Shah, chief strategist at Principal Global Investors, says the UK will lose some of its sheen' thanks to Brexit, even though a free trade deal has been reached.

Markets should react positively to the news that a deal has been reached. The cleaning up of this endless saga will provide relief to Brexit-weary investors and the public alike. While Sterling will enjoy a bounce, there is no escaping that the deal agreed will not protect the UK economy from some form of economic disruption next year which will only add to the deep economic scarring already inflicted by COVID-19.

2021 will undoubtedly be a stronger year for the UK economy, as it will for many countries, with the introduction of the vaccine. But the damage inflicted by COVID-19 this year means that, according to the Office of Budgetary Responsibility's (OBR) own forecasts, the UK economy will shrink by almost 11% in 2020-its worst annual performance in over three centuries. That economic damage will be carried with it for years, likely only recovering to its 2019 peak in late 2022. The projected pace of the recovery, as forecast by the OBR, is despite being cushioned by heavy fiscal support. After the latest extension to the government's furlough scheme, the fiscal deficit is set to hit a tremendous 20% of GDP.

Achieving a deal heads-off the cliff-edge that all investors have been worried about, so a deal is unequivocally a good thing. We have seen relief increasingly factored into a stronger pound and a softening of gilt prices.

However, as ever the case in the Brexit-saga, the devil will be in the detail. The risk that the deal is seen as too skinny might start to see a new year's hangover impact both the currency and the political fortunes of Boris Johnson as the consequences of Brexit continue to unfold."

Combined with positive news around the roll-out of Covid-19 vaccines, a Brexit deal will boost markets and strengthen the reflationary environment we expect to prevail in the first half of 2021.

We believe the conditions are ripe for a coordinated acceleration of global growth over the next three to six months, of which this is only the beginning. The temporary return of growth and inflation increases the potential for cyclical value names to outperform growth stocks over this period, and we have added cyclicality to our portfolios through a global value ETF.

4.08pm GMT

Ranko Berich, head of market analysis at Monex Europe, explains why the pound has dropped back since the deal was announced:

The uninspiring sterling reaction to today's confirmation of a trade deal is looking like a classic case of buy the rumour, sell the fact".

After weeks, months, and years of back-and-forth, it seems the confirmation of the deal was mostly as expected by markets and as such is not a game changer for sterling. Other factors, most importantly Covid-19, will now once again begin to drive the outlook for the pound."

3.23pm GMT

The pound has dipped back from its early highs, now we actually have a Brexit trade deal.

Sterling is now trading around $1.355, still up over half a cent today (having almost hit a new 31-month high this morning).

2.55pm GMT

Update: The trade deal is finally done.

Here's our news story, by Lisa O'Carroll and Daniel Boffey:

A historic deal on the UK's future trading and security relationship with the European Union has been struck on Christmas Eve, a week before the end of the Brexit transition period.

As the country leaves the single market and customs union on 31 December, new arrangements allowing for tariff-free trade in goods and close police and judicial cooperation will come into force.

2.42pm GMT

With the London stock market now closed for Christmas, it seems sensible to wrap this up.

Especially as our Politics Live blog is covering the Brexit news:

This will add to the major disruptions and delays at the UK-EU borders

2.38pm GMT

The US stock market has opened rather quietly, on a shortened trading day before Christmas.

The Dow Jones industrial average has risen 67 points, or 0.2%, to 30,197, as investors shrug off Donald Trump's decision to veto a $740bn defence spending bill.

2.09pm GMT

The latest word on the elusive trade deal is that the negotiations have been delayed because the European commission was using the wrong fish figures.

Our Politics Live blog explains:

The final stage of the negotiations for a post-Brexit trade deal has been delayed after it emerged that the European commission was using out-of-date figures to calculate the reduction in the amount of fish that member states can catch in British waters after 1 January.

A deal was due to be announced early this morning but the announcement had to be postponed when officials noticed a discrepancy between two sets of fishing figures and realised that the numbers used in the negotiation appeared to be out of date.

The delay on Brexit seems to be that some of the baseline fish figures the EU shared with member states don't tally with those negotiated in the room with the UK, so there is now an effort to ensure the two sets of numbers tally and everyone is talking about the same thing

Nothing is agreed until everything is agreed" Yes, this is the truism that has governed these negotiations from the start.. But - as one EU diplomat mentioned in passing - they could have started counting the mackerel a few days earlier .. #Brexit

2.02pm GMT

European stock markets have also closed for Christmas with little drama.

Spain's IBEX rose almost 0.5% but France's CAC dipped by 0.1%.

1.57pm GMT

The pound has now dipped below $1.36, as there's still no sign of this elusive Brexit deal.

City traders, who have clocked off for Christmas, can enjoy some quality TV instead:

Sounds like Moana and maybe even Cars 3 are now also safe

1.46pm GMT

A share index of small UK companies has hit a record high today, lifted by Brexit deal optimism.

The FTSE Small Cap index enjoyed a Santa Rally today, finishing 0.8% higher and rising above its previous record (set on 7th December).

Domestically focused UK shares jumped about 1% in Thursday's shortened trading session in anticipation that Britain and the European Union would announce a trade pact to avoid a chaotic separation at the end of the year.

The mid-cap FTSE 250 index, considered a proxy to Brexit sentiment, jumped 0.6% to its late February high, while small-cap stocks surged 0.8% to a record high.

1.17pm GMT

Brexit deal optimism has pushed the FTSE 250 share index of medium-sized firms to a new 10-month closing high.

The FTSE 250 is seen as a better gauge of UK economic prospects than the (rather larger) FTSE 100 because it contains more domestic companies.

Ftse 250 (domestically focussed index) finishes up almost 250pts (1.2%), almost 5% on week, as few remaining traders head home to see if this deal actually arrives before Santa

Much more internationally focussed FTSE 100 manages just a 6 point rise, as deal hopes = stronger which reduces value of overseas profits

12.53pm GMT

Here are the top risers and fallers on the FTSE 100 share index today, before trading finished early for Christmas:

12.43pm GMT

That's it. The London stock exchange has finished for Christmas, without traders getting a glimpse of the UK-EU trade deal.

12.31pm GMT

The BBC's Gavin Lee is reporting that the Brexit deal could be a few hours away yet, dashing early hopes that it might come before the London stock market closed for Christmas.

EU official close to the talks says there's a good few hours yet" on the negotiations before they can conclude. #BrexitDeal #Brexit

BBC News reports Brexit deal "will be a good few hours yet".

Talks to conclude a Brexit trade could still have some hours to run", a UK source said on Thursday amid high hopes that negotiators were about to clinch a long-elusive deal.

A European Union official, agreeing that a deal could be some hours away, said the two sides were still haggling over the EU's right to fish in British waters.

BREXIT - EU OFFICIAL SAYS TRADE TALKS SNAGGED ON FISHING, DEAL MAY STILL BE HOURS AWAY... we are NOT really going to do this on Christmas eve

12.03pm GMT

Here's an interesting thread on the (awaited) deal, from Alex Stojanovic of the Institute for Government.

From an economic point of view the UK could've got more on services. But its priority was maintaining independence. You could look at that and say it still got a zero-duty zero-quota FTA with some important extras - ROO leniency in some areas, cooperation on customs 1/ https://t.co/gPvHi7GfGm

If your main criticism is that this deal is going to be bad economically for the UK, that criticism basically applied from the moment the UK decided not to pursue single market membership or some sort of variant. 2/

The FTA could've got better on services but how much overall difference would it have made? It was always going to be limited. In the end this deal strikes a particular balance that more heavily weights the UK's independence over economic access. But it is still a balance 3/

If the UK gets a decision for data adequacy and financial services equivalence this is even more true. By striking a deal the UK has made these outcomes much more likely than in no deal and they will make a big difference. 4/

The UK has still secured a framework for cooperating with the EU. In the future the UK and the EU can build on this if they want to. In the meantime, the UK got about as much as it could've hoped to with its red lines set so firmly towards rejecting EU offensive asks. ends/

11.59am GMT

Reuters writes:

JPMorgan said the EU had secured a deal which allows it retain nearly all of its advantages from trade with the UK but with the ability to use regulations to cherry pick" among sectors where the UK had advantages - such as services.

JPMorgan on the Brexit deal: pic.twitter.com/V3itxeqnVJ

11.51am GMT

Professor Costas Milas of Liverpool University has kindly sent over a chart, showing how sterling has responded to changes in UK economic policy uncertainty in recent years (measured by the discussion of policy uncertainty in 650 UK newspapers).

From the plot, higher policy uncertainty hammers both the sterling effective rate and the sterling rate against the dollar.

Notice that the sterling index tracks policy uncertainty more closely (its correlation with policy uncertainty is -0.52) than the sterling against the dollar (its correlation with policy uncertainty is much weaker at -0.23). Let's not forget the sterling vs the dollar has also responded to Trump's policies and/or tweets!

11.39am GMT

With less than an hour's trading to go until the stock market closes early for Christmas, the FTSE 250 index is still solidly higher.

The mid-cap index is currently up 1.1%, or 225 points, at 20,523, having hit a 10-month high in early trading.

11.25am GMT

Raffi Boyadjian, senior investment analyst at XM, says the pound is showing a relatively contained reaction' to the prospect of an imminent trade deal with the EU.

Anxiety over the Covid-19 pandemic, and ongoing disruption at the ports, may be a factor, he adds.

Investors are either holding back until there is an official statement out of fear of a last-minute hiccup, or expectations that a deal would be done have already been mostly priced in, raising the possibility of buy the rumour, sell the fact' trades in the coming sessions.

However, a more likely reason for sterling's unenthusiastic response is rising concerns about the British economy, deal or no deal. The UK recorded almost 40,000 cases of coronavirus on Wednesday - the highest daily tally so far in the pandemic. The government yesterday added more regions of England to the highest tier of restrictions, effectively placing them under full lockdown. Making matters worse, travel across the Channel - the UK's most important trade route with Europe - remains clogged up with queuing lorries and the recent easing of the ban by France has done little to alleviate the situation.

11.18am GMT

After over three hours of muted Christmas Eve trading, the FTSE 100 has now dipped into the red.

The blue-chip index is now down 12 points or 0.2% at 6483, as investors await the much-anticipated Brexit trade deal.

Kung Fu Panda 3 has just started on BBC One and it doesn't seem likely we'll have to press pause for a deal announcement

10.53am GMT

Boris Johnson has been accused of selling out farmers - particularly in Scotland and northern England - after it emerged that seed potatoes are not set to be included in a post-Brexit trade deal, my colleague Libby Brooks writes.

A letter from the Department for Environment, Food and Rural Affairs (Defra) said the EU would allow almost all food and plant exports from Great Britain to continue from 1 January.

Unfortunately the EU have confirmed they will not accept our case for a permanent change to the prohibition on seed potatoes ... on the grounds that there is no agreement for GB to be dynamically aligned with EU rules."

The seed potatoes industry is concentrated in Scotland & Northern England, and is worth over 100m a year. Can't even export to Northern Ireland. https://t.co/5D4rucNJEY pic.twitter.com/W4erJxxkqH

The seed potato industry is worth 113m to the UK. Scotland has perfect conditions for the best seed potatoes in the world. This is a terrible deal for that industry https://t.co/LCMITX5FhH

10.35am GMT

Lloyds Banking Group is still the top riser in the FTSE 100 index, up 5% currently at 39p.

That means the UK lender has gained 12% since yesterday morning, as hopes of a Brexit trade deal have built up.

10.11am GMT

BlackRock portfolio manager Rupert Harrison (formerly top economic advisor to chancellor George Osborne) is also positive about economic prospects next year:

Reasons to be cheerful about 2021 in the midst of a chaotic Christmas:

- With a deal done, Brexit will become a 3rd or 4th tier political issue

- With the vaccines, life should be pretty much back to normal by May at the very latest

- The global economy will be booming

And an important omission - we won't need to care about whatever Trump has just tweeted:https://t.co/oE0wJ405Um

10.06am GMT

Paul Dales of Capital Economics points out that Britain is still heading for a relatively hard' Brexit, although a deal will remove one potential brake on the recovery.

He explains:

Today's news that a UK-EU Brexit deal will soon be announced may not boost the financial markets by much more. But a decent economic recovery in 2021H2 may mean that the pound rises to around $1.40 by end-2021 and the FTSE 100 climbs to about 7,500.https://t.co/SnkQWEEfUW pic.twitter.com/DVDupL5Cb0

9.37am GMT

David Owen, chief European economist at investment bank Jefferies, points out that a deal won't be the end of the Brexit process:

The devil will be in the detail, but at least we are on the cusp of a deal finally being agreed, and we can hopefully look forward to a strong economic recovery from the second quarter of next year onwards, after the vaccines have been rolled out.

But this is not the end of Brexit, far from it. 2021 will be the start of managed divergence and for many companies, particularly for services, a fundamental change in the way they do their business.

9.35am GMT

The pound has risen against the euro this morning too.

Sterling gained over 0.6% to touch 1.115, its highest point since December 1st.

9.13am GMT

Sterling is continuing to strengthen, and just hit $1.36 against the US dollar, up over a cent today.

That puts the pound close to its highest level since 2018 (it hit $1.362, a 31-month high, last Thursday).

Pound rally continues as a UK-EU Brexit trade deal is imminent. pic.twitter.com/O52TbuXssN

9.04am GMT

The City, like the rest of the country, is still waiting for the deal to actually be announced.

A last-minute hitch' related to fishing seems to have emerged, Reuters reports:

Irish Foreign Minister Simon Coveney said a late snag related to fishing had delayed the agreement, but that an announcement was expected later on Thursday.

There is some sort of last-minute hitch" related to small text" of a fisheries agreement, Coveney told Ireland's RTE radio after weeks of haggling over just how much fish EU boats should be able to catch in British waters.

Last-minute fishing hitch delays announcement of Brexit deal - Irish foreign minister https://t.co/QuFGMDCf8C pic.twitter.com/Z0MKszAlt9

8.57am GMT

The FTSE 250, which is more domestically focused than the blue-chip FTSE 100, has hit a new 10-month high this morning.

The index of medium-sized companies, many in the UK, jumped by over 1% in early trading, hitting its highest level since the end of February (when the pandemic sent markets tumbling).

8.32am GMT

Jeffrey Halley of trading firm OANDA says reports of a Brexit trade deal breakthrough have lifted the markets:

Financial markets picked themselves up and dusted themselves of overnight, after a torrid week. Sentiment improved after headlines started appearing that the United Kingdom and European Union have finally reached a provisional Brexit trade agreement.

Still, it leaves the UK isolated internationally due to Covid-19, thousands of trucks marooned on each side of the English Channel and follows more of England's regions being moved into a hard tier-4 lockdown.

8.31am GMT

Some other European markets have also opened a little higher, but there's not exactly a rush to buy shares.

France's CAC, Spain's IBEX and the Netherland's AEX have all gained around 0.25% in early trading (Germany and Italy are closed for Christmas).

8.24am GMT

The FTSE 100 index has gained 31 points in early trading, up 0.5% to 6526, lifted by the banks and housebuilders.

That pushes the index of the biggest companies listed in London close to the nine-month high set earlier in December.

8.17am GMT

Shares in UK banks and housebuilders have jumped at the start of trading, as the City anticipates a Brexit trade deal.

Lloyds Banking Group are the top riser on the blue-chip FTSE 100 index, up over 5%, with fellow banks Barclays (+3.6%) NatWest (+3%) also gaining.

8.05am GMT

The Financial Times says a trade deal would be a platform to rebuild relations between the UK and the European Union:

The deal will preserve tariff-free EU-UK trade for goods. It will also cover issues such as police and security co-operation and preserve the cross-border energy market, but it will do little for the services sector.

Although the agreement is often described as a thin" trade deal, it will provide a legal platform upon which the two sides can rebuild relations more than four years after the trauma of the 2016 Brexit vote.

7.55am GMT

Reuters reports that the UK and EU are on the cusp' of avoiding a chaotic end to the Brexit process this morning.

Britain and the European Union were on the cusp of striking a narrow trade deal on Thursday, swerving away from a chaotic finale to a Brexit split that has shaken the 70-year project to forge European unity from the ruins of World War Two.

While a last-minute deal would avoid the most acrimonious ending to the Brexit divorce, the United Kingdom is heading for a much more distant relationship with its biggest trade partner than almost anyone expected at the time of the 2016 Brexit vote.

If there is to be a deal, it will cover goods but not the financial services that make London the only financial capital to rival New York. Services make up 80% of the British economy.

In essence, the agreement is a narrow free trade deal surrounded by other pacts on fisheries, transport, energy and cooperation in justice and policing.

On the cusp of Brexit trade deal, EU and UK hash out final details https://t.co/t307ErjLq1 pic.twitter.com/cLvY7BDCST

7.16am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A UK-EU free trade deal has long been high on investors' wish list this Christmas (along with successful vaccine rollouts and a return to normal, happier times).

Hopes of a Brexit deal in time for Christmas sent the pound higher this morning, and the gradual re-opening of the UK-France border is also providing support.

European markets to head higher this morning as they prepare for the UK and the EU to unveil a long-awaited Brexit deal #Brexit #indices #Commodities #forex Via @CityIndex https://t.co/ajZbabjt5M

A post-Brexit trade and security treaty with the European Union is within touching distance", Downing Street said on Wednesday night as Boris Johnson prepared to unveil his hard-fought Christmas Eve deal.

The prime minister is expected to announce the terms of the agreement following a final call with the European commission president Ursula von der Leyen - but the two sides battled deep into the night to gain a last-minute advantage.

#brexit work will continue throughout the night. Grabbing some sleep is recommended to all brexit-watchers at this point. It will hopefully be an early start tomorrow morning...

Understand there were four calls between PM and EU chief Von Der Leyen yday to get Brexit deal over the line. One final one in about half an hour expected to sign and seal after late night wrangles over individual fish species (am not making this up)

Morning! After negotiators worked through the night, the timings are slipping of expected press conferences following a call between the PM and the European Commission chief .. #Brexit

Morning - I hope you are asleep, especially as it's Christmas Eve. If you are awake, expect PM a to talk to EU chief at about 7am UK time now with a press conference to follow at about 8

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