Banks and housebuilders rally
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.
Taylor Wimpey (+5%), Persimmon (+4.5%) and Berkeley Group (+4.2%) are also in demand. The homebuilders are a bellwether of UK economic confidence, and typically suffer whenever fears of a no-deal Brexit sweep the markets.
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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.
The final days of negotiations were dominated by discussions over the fate of the EU’s fishing rights in UK waters, currently worth about €650m per year.
According to people briefed on the talks, the deal includes a transition period of five-and-a-half years during which EU boats will have guaranteed access to UK fishing waters. The EU’s fishing rights will be reduced by 25 per cent compared to now, with the knock-on effect of boosting how much British boats can catch.
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Reuters: On cusp of Brexit trade deal…
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.
But…some disruption is certain, even if a zero-tariff and zero-quota deal on goods is agreed.
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.
Despite the agreement, goods trade will have more rules, more red tape and more cost. There will be some disruption at ports. Everything from food safety regulation and exporting rules to product certification will change.
Introduction: Brexit deal hopes lift pound
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).
And today, four and a half years after the referendum, a narrow agreement may finally be imminent.
Sterling is pushing higher this morning, and the London stock market is expected to rise when trading begins at 8am, as expectations build of an Brexit trade deal announcement this morning.
The pound has gained over three quarters of a cent in early trading against the US dollar, to around $1.357, on growing optimism that the two sides will avoid moving to WTO trade terms when the transition period ends on 31st December.
That adds to yesterday’s gains when the news broke that a deal was close. It takes sterling closer to the 31-month high of $1.362 set earlier this month.
Josh Warner of City Index says:
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.
Deal optimism is also expected to lift shares in Europe, with Britain’s FTSE 100 called up 33 points, or 0.5%, at 6528 points. It’s only a half-day session in the City, but we could still get a traditional ‘Santa Rally’.
The two sides have worked through the night in Brussels, putting the finishing touches to a legal text that is expected to preserve tariff-free trade in goods between the EU and UK, and also protect co-operation in other areas such as security.
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.
A press conference planned for early on Wednesday night did not go ahead as the two sides had needed further time to nail down the details which will include unprecedented provisions for zero tariffs or quotas on all goods.
There had been hopes that the deal might come last night, but (as so often with Brexit), this goal slipped as negotiators kept hammering out the final details.
The European Commission president’s spokesman, Eric Mamer, predicted an early start:
The BBC’s Laura Kuenssberg reports that several calls took place between Boris Johnson and Ursula von der Leyen to get a deal done, with fish the sticking point:
There had been rumours of a press conference at 8am UK time, but this may now be slipping, the BBC’s Katya Adler reports.
Our Politics liveblog is covering the drama, but we’ll be tracking the financial reaction here in the final trading day before Christmas:
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