Pound pares gains as Brexit talks continue

Summary:

• GBP trading lower on the day

• UK100 drops on China news 

• UK banks in focus after Friday’s bumper gains   

After ending last week with the largest 2-day gain in a decade, the pound has pulled back a little in recent trade as the markets almost euphoric reaction to positive remarks from the EU on the prospect of a Brexit deal has been checked a little. Over the weekend there was some less positive noises out of Brussels with one EU diplomat stating that there was “no breakthrough yet” and another going further in claiming that today’s talks would the the “one last chance” for an agreement. Negotiations are ongoing between the two parties ahead of the EU summit which begins on Thursday and while we’re no doubt in a far more positive position than we were this time last week the latest comments are a timely reminder that nothing has been agreed upon yet.

GBP is losing ground at the start of the week with JPY and CHF the biggest beneficiaries. Source: xStation 

FTSE dips to start the week

There’s also been a little bit of softness seen in UK stocks with the FTSE drifting back near the 7200 handle. Last week saw the FTSE rise, but the gains were small compared to many of its peers with the sharp appreciation in the pound weighing on the blue-chip index. While the benchmark as a whole is a pretty poor Brexit-proxy there are several sectors that have been exhibiting a positive correlation to the pound on this front with banks and housebuilders the most obvious. 

UK stocks failed to join in the broader rally seen in other indices last week and a possible bear flag can be seen on D1. Price is also back below the 200 day SMA. Source: xStation  

Friday saw huge gains for banks in particular with Lloyds and RBS jumping over 10% and Barclays wasn’t far behind in rising by 7%. Given the pullback in the pound this morning it shouldn’t come as too much of a surprise that these shares are amongst the biggest laggards on the FTSE, but in a similar manner to sterling they still remain far higher than where they did just a couple sessions ago. 

Shares in Lloyds have dipped lower today after huge gains on Friday. Price smashed up through the 200 day SMA for the first time since June and there’s not been consecutive closes above this indicator in almost 5 months. Source: xStation

In recent trade UK stocks have dropped after reports crossed the wires that China wants more talks ahead of signing deal. Read more here.