European stocks drop on no-deal Brexit fears
Brexit pessimism gripped European stock markets on Friday as fears grow that Britain is on course to crash out of the EU without a trade deal.
Stock markets opened lower and lost ground throughout the session, finding themselves deeply in the red by mid-afternoon. Prices made up some ground in time for the close by remained negative.
The DAX (^GDAXI) closed down 1.3%, the CAC 40 (^FCHI) fell 0.8% in Paris, and the FTSE (^FTSE) was down 0.8% in London.
The slump came amid growing fears that Brexit trade talks are heading for collapse.
Joshua Mahony, a senior market analyst at IG, said there was “a growing consensus that a no-deal Brexit now appears to be the most likely eventuality.”
The UK has to until Sunday 13 December to reach a trade agreement with the EU, ahead of 1 January when Britain finally exits the 27-nation bloc. Both camps have signalled talks are a long way off reaching an agreement.
Overnight, UK prime minister Boris Johnson said there was now a “strong possibility” of a no-deal Brexit. He followed up with comments on Friday to the press saying no deal was now “very, very likely.”
On Friday morning, European Commission president Ursula von der Leyen told journalists “positions remain apart on fundamental issues”.
The pound, the bellwether of Brexit sentiment, dropped 0.7% against the US dollar (GBPUSD=X) and 0.5% euro (GBPEUR=X) in early trade. Sterling had been the worst performing G10 currency on Thursday.
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Continued pressure on the pound came even as the Bank of England declared that UK banks remained strong enough to weather the COVID-19 crisis and have done all they can to prepare for Brexit, according to its bi-annual financial stability report.
Banks, often seen as a proxy for the UK economy, were among the biggest fallers on the FTSE 100. Lloyds (LLOY.L) dropped by 4.5%, Barclays (BARC.L) fell 4%, and NatWest Group (NWG.L) plummeted 6.6%. The more internationally exposed HSBC (HSBA.L) limited losses to 0.6%.
READ MORE: Bank of England says UK banks can withstand COVID-19 and Brexit
US stock markets added to the dour mood on Friday, falling at the open. The S&P 500 (^GSPC) was down 0.6% by the time Europe closed, while the Dow Jones (^DJI) dipped 0.3% and the Nasdaq (^IXIC) dropped 0.9%.
Buying appetite dampened as traders watched the likelihood of a US fiscal stimulus package happening by year end fizzling out.
Democrat House speaker Nancy Pelosi said wrangling over a spending package and coronavirus aid could drag on through Christmas. The delay to action comes despite a surprise surge in US jobless numbers on Thursday.
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Shares of Airbnb (ABNB) had surged 113% above their IPO price on their first day on the public markets on Thursday, giving the company a valuation of more than $100bn (£76m). The stock rose another 3.5% on Friday.
Shares of Dow-component Disney (DIS) jumped to an all-time high during overnight trading after the company said the number of Disney+ subscribers rose to 86.8 million.
“It’s been a pretty strange 24-48 hours in many ways,” said Jim Reid, a senior strategist at Deutsche Bank.
“We’ve had a IPO market in the US that’s partying like its 1999 while US jobless claims spiked higher, Covid-19 restrictions mount, US stimulus talks still appear gridlocked, Brexit trade talks are not looking encouraging, and with a sober reminder of the structural problems Europe faces yesterday as the ECB expanded its stimulus package yet further and seemingly locked in negative rates for longer.”
In Asia, Japan’s Nikkei (^N225) closed 0.2% lower on Friday, while the Hong Kong Hang Seng (^HSI) slid 0.4%, and China’s Shanghai Composite (000001.SS) was flat. South Korea’s KOSPI (^KS11) fell 0.3%.
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