London close: Stocks rally as pound sinks on Brexit fears
London stocks closed well into positive territory on Monday as sterling slumped amid fears of a no-deal Brexit.
The FTSE 100 ended the session up 2.39% at 5,937.40, and the FTSE 250 was 1.66% firmer at 17,642.20.
Sterling was negative against both of its major trading pairs, last down 0.84% on the dollar at $1.3168, and falling 0.63% against the euro to €1.1143.
Those moves for the pound came after reports that the UK government was drawing up new laws that would override part of last year's EU withdrawal agreement.
Prime Minister Boris Johnson has demanded a deal be reached by 15 October.
Johnson’s threat to undermine an international treaty would see Britain remove a legal requirement for new Northern Ireland customs inspections which were designed to stop the return of checks at the border with the Republic of Ireland.
The prime minister was reportedly set to tell the EU that unless a deal is struck by the October deadline the UK would be ready to trade on World Trade Organisation terms from January.
“Boris Johnson’s determination to renege on the protocols agreed for Northern Ireland in January’s withdrawal agreement, ahead of a fast-approaching deadline in October, caused no-deal Brexit fears to tank the pound, undoing a good chunk of the growth the currency managed across August,” said Spreadex analyst Connor Campbell.
“For the last few weeks and months sterling has been able to ignore Brexit, the fire alarm of a no-deal Brexit, growing louder and louder after every bridge burned during the failed UK-EU talks, drowned out by the pandemic.”
Campbell said that the pound had now “opened the oven” and found a charred deal no longer fit for consumption - a “betrayal” of what was promised by the Tories during last year’s election. “The currency reacted accordingly, sinking 0.7% against the euro and 0.8% against the dollar, leaving cable at its worst price in close to a fortnight with plenty more room to fall.”
The FTSE 100 tends to benefit when the pound weakens, as around 70% of its constituents derive their earnings from overseas.
Investors were also mulling over the latest survey from mortgage lender Halifax, which showed annual house price growth hit a new high in August thanks in part to pent-up demand following the Covid-19 lockdown.
House prices rose 5.2% on the year to £245,747, up from 3.8% growth in July and marking the strongest level of growth since late 2016.
On the month, prices were up 1.6% following a 1.7% increase in July.
“A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty,” said Halifax managing director Russell Galley.
Analysts were sceptical that the rise in prices could be sustained, however.
Capital Economics said pent-up demand will soon be expended, while a weak economy, cautious lenders and the end of the stamp duty cut will weigh on prices.
"We think house price growth will soon start to moderate, slowing to a standstill in 2021."
In equity markets, Associated British Foods closed up -.54% after it said Primark's annual profit would at least be at the top of guidance after strong trading at the clothes chain in the fourth quarter.
Transport operator FirstGroup surged 26.89% after the Sunday Telegraph reported that its US operations have attracted interest from several major private equity firms.
Media company Future pushed 18.43% higher after saying it FY20 results are set to be "materially ahead" of market expectations.
Housebuilder Crest Nicholson gained 9.93% after an upgrade to ‘buy’ at Deutsche Bank, which said strong action has been taken to address the cost base and the stock is attractively valued.
Market Movers
FTSE 100 (UKX) 5,937.40 2.39%
FTSE 250 (MCX) 17,642.20 1.66%
techMARK (TASX) 3,799.96 2.70%
FTSE 100 - Risers
Melrose Industries (MRO) 122.30p 5.84%
Scottish Mortgage Inv Trust (SMT) 894.00p 5.48%
Ashtead Group (AHT) 2,693.00p 5.15%
M&G (MNG) 165.40p 5.08%
Experian (EXPN) 2,799.00p 4.83%
Polymetal International (POLY) 2,008.00p 4.74%
Just Eat Takeaway.Com N.V. (CDI) (JET) 8,254.00p 4.64%
GlaxoSmithKline (GSK) 1,496.00p 4.24%
Avast (AVST) 552.50p 4.15%
Rentokil Initial (RTO) 530.20p 4.04%
FTSE 100 - Fallers
International Consolidated Airlines Group SA (CDI) (IAG) 209.20p -4.65%
NATWEST GROUP PLC ORD 100P (NWG) 106.65p -1.07%
British Land Company (BLND) 351.80p -0.28%
Barclays (BARC) 107.04p 0.06%
Lloyds Banking Group (LLOY) 26.82p 0.09%
Evraz (EVR) 328.10p 0.28%
Land Securities Group (LAND) 547.20p 0.44%
Associated British Foods (ABF) 2,047.00p 0.54%
Whitbread (WTB) 2,541.00p 0.59%
Morrison (Wm) Supermarkets (MRW) 192.00p 0.63%
FTSE 250 - Risers
FirstGroup (FGP) 50.45p 26.89%
Future (FUTR) 1,722.00p 18.43%
Crest Nicholson Holdings (CRST) 208.20p 9.93%
Go-Ahead Group (GOG) 722.00p 8.75%
National Express Group (NEX) 126.70p 8.57%
Dechra Pharmaceuticals (DPH) 3,300.00p 6.87%
Genus (GNS) 3,558.00p 6.40%
Ascential (ASCL) 302.00p 6.11%
Airtel Africa (AAF) 61.00p 5.90%
Euromoney Institutional Investor (ERM) 880.00p 5.77%
FTSE 250 - Fallers
Wizz Air Holdings (WIZZ) 3,578.00p -3.51%
Spirent Communications (SPT) 270.50p -3.24%
Capital & Counties Properties (CAPC) 128.00p -3.18%
Watches of Switzerland Group (WOSG) 320.50p -2.99%
PPHE Hotel Group Ltd (PPH) 1,005.00p -2.90%
Kainos Group (KNOS) 1,002.00p -2.89%
Rank Group (RNK) 136.60p -2.74%
BMO Commercial Property Trust Limited (BCPT) 63.80p -2.60%
easyJet (EZJ) 628.40p -2.36%
Calisen (CLSN) 164.75p -2.22%