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FTSE 100 surges on Brexit and trade deal hopes

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
U.S. President Donald Trump and China's President Xi Jinping earlier this year. Both sides have reportedly agreed the text of a 'Phase One' trade deal. Photo: Kevin Lamarque/Reuters

Stocks rose across Europe on Monday, amid optimism about global trade and Brexit.

The FTSE 100 (^FTSE) rose over 2%, crossing above 7,500, and other major indexes across the continent saw gains.

The surge in share prices came after the US and China on Friday night announced that both sides had agreed the text of a ‘Phase One’ trade deal. US trade representative Robert Lightziger said a deal was “totally done” on Sunday. The agreement halted US tariffs on Chinese imports that were due to kick-in on Sunday night.

“The legal work, full details and signing (probably in January) is still to come but it appears that agreement has been made,” said Deutsche Bank’s Jim Reid on Monday morning.

Neil Wilson, chief market analyst at Markets.com, said: “A Christmas truce for now is supporting risk sentiment but with a phase one deal now effectively priced in, US markets could struggle to make more meaningful gains.”

Investors also continue to cheer the Conservative party’s decisive victory in last week’s UK election. The victory means the Conservatives now have enough votes in the House of Commons to get Boris Johnson’s Brexit deal through parliament and move on to the next stage of negotiations with the EU.

“European markets that have been held in check by Brexit related risks may have more room to go higher,” Wilson said.

The FTSE 100 (^FTSE) was up 2.1% at just before 11.30am UK time. British American Tobacco (BATS.L) led the index higher, rising 4.2% after a double upgrade from Bank of America. The US bank now rates the stock a buy.

Banking stocks also extended gains made on Friday. Royal Bank of Scotland (RBS.L) rose 2% after and upgrade from Morgan Stanley and Lloyds Bank (LLOY.L) climbed 1.8%.

Elsewhere in Europe, Germany’s DAX (^GDAXI) rose by 0.5% and the CAC 40 (^FCHI) climbed 0.7% in Paris. The Euronext 100 (^N100) also rose by 0.7%.

Brexit hopes also buoyed the pound in early trade against the euro (GBPEUR=X) and the dollar (GBPUSD=X).

“A cut in interest rates has become considerably less likely, as the decreasing political risk may noticeably boost companies' appetite for investment,” said Marc-André Fongern, an EMEA foreign exchange analyst at MAF Global Forex.

“I still consider [sterling] to be undervalued. In my opinion, chances of a further recovery may considerably outweigh potential downside risks.”