FTSE 100 fails to rally amid fears over Boris Johnson Brexit strategy and negative interest rates

·3-min read

The FTSE-100 was today expected to fail to fight back from last week's losses as investors fear Boris Johnson's Brexit team could fail to reach a trade deal.

Reports today cited growing concerns in Whitehall of "chaos" at UK ports as companies have failed to prepare for the event of a no-deal Brexit. Talks between negotiatators broke down last week although Britain's David Frost was expected to pick up the dialogue again unofficially as early as today.

Yesterday, Michael Gove, the cabinet office minister, said his optimism about a deal being reached was waning although he said the door to talks was still "ajar". Investors were left having to figure out whether all this is just negotiating bluster or whether British officials really are prepared to leave without a deal and risk tariffs and quotas for British goods plus disruption at the border.

Business organisations from multiple sectors of the economy have called on the government to get back to the negotiating table and strike a free trade deal.

The Government will this week start an advertising campaign attempting to remind businesses of the need to prepare for a no deal outcome - a request likely to be ill-received by companies already running out of cash due to Covid-19.

Finance directors of the largest companies in the UK have slashed their predictions for a Covid-19 recovery in demand from customers until the end of next June. Three months ago, more had been optimistic about an earlier recovery.

Worries over Brexit were set to keep the FTSE 100 flat at 5919 today, unlike Paris and Frankfurt markets which were expected to post minor gains. London shares staged a rally on Friday but that was set to peter out.

As ever, coronavirus was also weighing down on sentiment as the UK and European governments extend lockdowns. European Central Bank president Christine Lagarde was not alone in warning at the weekend that the continent faces the very real prospect of a double-dip recession.

Today brought more, brighter, news from China, following upbeat trade figures last week. Data today showed retail sales jumped 3.3% in September - doubling expectations, while GDP for the third quarter showed growth of 4.9%, on top of the previous quarter's 11.5% rise.

That has prompted a decent start to the week on Asian markets this morning but was in stark contrast to the UK's outlook, which Moody's on Friday said would be "meaningfully weaker" than originally thought, citing the declining institutions and governance of the UK in recent years - thought to be a barb at Britain's political leadership.

Bank of England deputy governor Jon Cunliffe will speak later today, with markets hoping for clues on where the Bank's thinking is on negative interest rates at the moment. Officials are clearly split on the issue.

CMC Markets analyst Michael Hewson said: "It will be interesting to see if Jon Cunliffe's thinking has evolved from what he said in June, when he sat on the fence on the subject."

G4S will come under scrutiny after its board switly rejected Gardaworld's latest detailed takeover bid details. The Canadian company posted its offer document for a bid at 190p a share but G4S again spurned it as being significantly undervalued.

Little was new in the document except the disclosure that advisers would be paid up to £312 million if the deal was successful - a relatively high amount on such a deal.

More important to shareholders, however, will be the value of Garda's next offer, which will likely be rejected out of hand unless it is significantly above 210p.

M&C Saatchi, the deeply troubled ad agency, could see its shares come under pressure on reports that its existing shareholders will be heavily diluted under plans to pay staff up to £15 million in bonuses through shares. The Times reported that, to pay its share option scheme, it could have to increase the number of shares in issue by as much as a fifth, diluting the value of the existing stock.

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