(Alliance News) - Stocks in London ended sharply higher on Monday, with the internationally-exposed FTSE 100 index benefitting from a drop in the pound which was hit hard by negative Brexit headlines.
The flagship FTSE 100 index closed up 138.32 points, or 2.4%, at 5,937.40. The FTSE 250 ended up 287.92 points, or 1.7%, at 17,642.20, and the AIM All-Share closed up 11.13 points, or 1.2%, at 957.94.
The Cboe UK 100 ended up 2.4% at 590.71, the Cboe UK 250 closed up 1.7% at 15,059.80, and the Cboe Small Companies ended up 0.6% at 9,467.78.
In European equities, the CAC 40 in Paris ended up 1.8% and the DAX 30 in Frankfurt up 2.0%.
"The FTSE is the outperformer in Europe buoyed by the drop in the pound which came as UK Prime Minister Boris Johnson once again prepared us for no deal. There is little doubt this is a negotiation tactic ahead of the October 15 deadline that both have set for these talks but the walls are fast closing in," said Oanda markets analyst Craig Erlam.
"No deal may be the less desirable option for the UK and EU, particularly in the midst of a pandemic but both sides are going to have to blink soon or they may find themselves in an extremely uncomfortable position," Erlam added.
The pound was quoted at USD1.3170 at the London equities close, down sharply from USD1.3230 at the close Friday, as no-deal Brexit fears returned to the fore. Last week, sterling hit an eight-month high of USD1.3482 versus the greenback in an absence of negative Brexit-related headlines.
Against the euro, sterling was trading at EUR1.1130, down from EUR1.1192.
Concerns arose in Brussels after reports that Johnson was planning new legislation that would override parts of the Withdrawal Agreement treaty he signed last year.
"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.
The Financial Times reported that a bill to be put before parliament this week would undermine agreements relating to Northern Ireland customs and state aid.
Under the protocol, Northern Ireland, which will have Britain's only land border with the EU, will follow some of the bloc's rules to ensure the frontier remains open.
Eliminating border checks with the Republic of Ireland was a key part of the 1998 Good Friday Agreement, which ended 30 years of violence over British rule in the province.
In response, the European Union's chief negotiator Michel Barnier said Monday that the Brexit terms the UK agreed to before formally exiting the EU "must be respected".
"Everything that has been signed must be respected," Barnier told France Inter radio. "No land border is the pre-requisite for peace since the end of the conflict... and it's the pre-requisite for a united and coherent economy for the entire island, and also to respect the single market."
Barnier said he would discuss the report with his UK counterpart David Frost during the eighth round of negotiations on a future trade deal this week.
PM Johnson said Sunday that a trade deal with the EU must be reached by October 15, in order for it to be in force by the end of this year.
"If we can't agree by then, then I do not see that there will be a free trade agreement between us," Johnson said in a statement released by his office.
Commenting on the current state of play, ING said that the "Brexit heat is back on" and the pound is "unprepared" for the prospect of a no-deal departure from the bloc.
Analysts at ING said: "Following the pro-risk summer lull, we estimate that all Brexit-related risk premium has been priced out of GBP, with EUR/GBP now trading at around its short-term fair value. This is in stark contrast to August last year or June this year, when a roughly 5% risk premia was priced into sterling at the peak of Brexit uncertainty and concern about the outlook for UK-EU trade negotiations. While we still see an above 50% probability of a deal (albeit any deal is likely to be of a limited nature), the lack of risk premia priced into sterling suggests further downside to the currency in coming weeks, particularly if little progress is made ahead of the 15 October deadline.
"Perhaps then, we should view this story as part of a wider strategy to apply maximum pressure on the EU. After all, we saw similar fireworks this time last year, only for a deal to materialise weeks later. The move may also be designed to ease concern among Conservative backbench MPs. Whatever the case, there's little doubt that talks are in a precarious position. We suspect a deal is more likely than not, although the probability is now not much higher than 50:50."
The euro stood at USD1.1824 at the European equities close, up from USD1.1809 a day before. Against the yen, the dollar was trading at JPY106.28, marginally lower from JPY106.36 late Friday.
In the FTSE 100, gold miners Polymetal International and Fresnillo ended in the green, up 4.7% and 4.0% respectively, tracking spot gold prices higher.
The precious metal was quoted at USD1,929.44 an ounce at the London equities close, up from USD1,919.60 late Friday.
At the other end of the large caps, British Airways parent International Consolidated Airlines Group ended the worst performer, down 4.7% after several Greek islands are set to be added to the UK quarantine list.
England is to start applying a regional approach to its quarantine policy for international arrivals, Transport Secretary Grant Shapps said.
From 0400 BST on Wednesday arrivals from seven Greek islands will need to self-isolate for 14 days, but mainland Greece will maintain its coronavirus quarantine-exemption.
The Department for Transport said the Greek islands of Lesvos, Tinos, Serifos, Mykonos, Crete, Santorini and Zakynthos - also known as Zante - are losing their quarantine-exemptions, because data from the Joint Biosecurity Centre and Public Health England "has indicated a significant risk to UK public health from those islands".
The decision brings England partly into line with Wales, which removed six Greek islands from its quarantine-free list last week.
In the FTSE 250, FirstGroup ended the standout performer, up 27% after the Daily Telegraph reported at the weekend that a group of private equity firms could be lining up bids for the transport firm's US operations.
The Telegraph said on Saturday that Canary Wharf owner Brookfield, Apollo Global Management and KKR are among a slew of potential suitors for FirstStudent and FirstTransit. The report said FirstGroup's financial advisers had restarted a sales process in recent weeks, and this has attracted significant private equity interest.
FirstTransit operates in more than 300 locations across the US and Canada and FirstStudent is the largest provider of student transportation in North America.
At the other end of the midcaps, Wizz Air ended the worst performer, down 3.5% amid travel fears and after Peel Hunt started coverage on the central and eastern Europe-focused airline with a Sell rating.
Brent oil was quoted at USD42.10 a barrel late Monday, lower from USD42.72 at the London equities close Friday.
The economic events calendar on Tuesday has Germany trade data at 0700 BST and eurozone GDP readings at 1000 BST.
The UK corporate calendar on Tuesday has interim results from sportswear retailer JD Sports Fashion, builders' merchant Travis Perkins, housebuilder Vistry Group and aerospace components maker Meggitt.
Financial markets in the US will reopen on Tuesday after being closed on Monday for Labor Day.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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