Pound hit by Brexit fears as FTSE 100 closes at fresh record high – as it happened

Over in the US, having come within a whisker of the 20,000 barrier on Friday, the Dow Jones Industrial Average continues to head in the other direction on Monday.

At the moment the Dow is down 50 points 19913, a fall of around 0.25%.

On that note, it’s time to close for the evening. Thanks for all you comments, and we’ll be back tomorrow.

A strong euro has taken the shine of European markets which - in contrast to the FTSE 100 - are down on the day. The final scores showed:

• Germany’s Dax dropped 0.3% to 11, 563.99
• France’s Cac closed 0.45% lower at 4887.57
• Italy’s FTSE MIB fell 1.66% to 19,360.02
• Spain’s Ibex ended down 0.24% at 9492.8
• In Greece, the Athens market dipped 0.15% to 659.33

For the eighth day in a row, the FTSE 100 has closed at a new peak, equalling a record set back in 1997. If it closes higher on Tuesday, we would be in uncharted territory.

It is also the tenth trading day to see a positive close, itself a new record.

Bolstered by the weakness in the pound - partly thanks to Theresa May’s latest comments which seemed to suggest to traders that a hard Brexit is on the way - overseas earners and mining companies are among the main gainers.

Overall the FTSE 100 has finished up 27.72 points or 0.38% at a new peak of 7237.77.

Chris Beauchamp, chief market analyst at IG, said:

Yet again the fall in sterling has become the primary means by which the FTSE has risen, with some of the big names from the summer bounce, such as Reckitt Benckiser and Imperial Brands, making gains.

Oil prices are under pressure, with signs of increased US production and record Iraqi exports in December threatening to undermined the recent output curbs agreed by Opec and other producers.

Brent crude is currently down 2.9% at $55.43 a barrel while West Texas Intermediate is 3% lower at $52.37. Michael Hewson, chief market analyst at CMC Markets, said:

Oil prices have slipped back...after US rig counts rose again for the tenth week in succession, and their highest level in twelve months, which has helped temper further gains in the short term, after the highs seen last week.

While the prospect of Opec production cuts is expected to underpin the oil price, talking about them and doing them are two different things and given that Iraq saw production hit a record in December, cutting back is likely to be easier said than done, while Iran also reported a rise in exports.

MP Andrew Tyrie, chairman of the Treasury committee, will call for clarity on Brexit in a speech on Monday evening. As the pound suffers on fears of a “hard Brexit” Tyrie will say:

The Prime Minister’s decision to come forward soon with high-level objectives is welcome, if not overdue. A document is needed that enables a full and considered consultation with Parliament and the public.

Clarification can and should be provided on at least three major issues.

First, there is the question of whether the UK will seek to remain a member of the single market, or if not, seek at least to obtain equivalent access for trade in goods and services...

Second, the UK needs to decide whether to participate in a customs union with the EU....

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Third, and perhaps most important of all, the Government should take the opportunity to clarify whether the UK will seek transitional arrangements under Article 50. This provides that the EU Treaties may continue to apply to the UK, for an agreed period, after the withdrawal negotiations have been completed. This is a very important but apparently misunderstood provision. It has been confused with the separate provision in Article 50, which allows the two-year negotiating period to be extended. The latter requires unanimity; the former would be subject to QMV [qualified majority vote], and is therefore readily negotiable. A “standstill” at the completion of the negotiations under Article 50 could provide certainty, both about the operating environment for a specified period, and about the point at which the “standstill” would expire...

Given the need to build a broad-based support for its position, at home and abroad, the sooner the Government can provide clarity, the better.

The comments come ahead of a select committee hearing on Tuesday concerning the UK’s future economic relationship with the EU. This will hear evidence from HSBC chairman Douglas Flint, Elizabeth Corley, vice chair of Allianz Global Investors, and Xavier Rolet, chief executive of the London Stock Exchange.

Here’s Reuters story on German chancellor Angela Merkel’s latest comments relating to the UK and single market access:

The European Union must consider limiting Britain’s access to its single market if London fails to accept the bloc’s four freedoms in Brexit negotiations, German Chancellor Angela Merkel said on Monday.

Adding pressure on British Prime Minister Theresa May who at the weekend hinted at a “hard Brexit” - in which border controls are prioritized over market access - Merkel said there could not be negotiations based on “cherry picking.”

Merkel said it was important that “we also make clear on the other hand that access to the single market can only be possible on the condition of respecting the four basic freedoms. Otherwise one has to talk about limits (of access).”

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If Britain does not accept the EU’s four freedoms - free movement of goods, capital, services, and people - in Brexit negotiations, there will have to be talks about restricting access to the single market.

That’s the latest from German chancellor Angela Merkel, as quoted by Reuters, and reaffirms the EU’s position that single market access is inextricably linked to freedom of movement.

US markets have made a negative start to the new week.

After coming close enough to touch the elusive 20,000 level on Friday, the Dow Jones Industrial Average is slipping away from the record breaking level. A slip in oil prices and downgrades to Procter and Gamble and Coca-Cola, as well as a fall in Goldman Sachs, have helped push the Dow down 64 points to 19899.

The S&P 500 opened down 0.13% but the Nasdaq Composite edged up a similar amount.

The pound’s new slide could arguably mean it is now looking cheap, says Fawad Razaqzada, market analyst at Forex.com:

Though the Brexit vote has only had a limited impact on the economy thus far, the uncertainty could weigh on business spending in the months ahead. Indeed, the resignation of Britain’s top official in Brussels last week has raised question marks over the government’s self-imposed deadline of triggering the official EU exit clause by the end of March. The real impact of Brexit will not be known until after the fact. So, things could look and feel a lot different in the months and years ahead.

But the markets are forward-looking by nature and a lot of the negativity has been priced in. Some would argue even that the markets may have overreacted as the economic implications of Brexit may not be as bad as many fear, so the pound should not be this “cheap.”

And even if the Bank of England does not actually increase interest rates in the near future, we could have seen the end of the UK’s extraordinary loose monetary policy, he says:

When the UK government finally triggers Brexit Article 50 to start the formal process of leaving the EU, the BoE may not necessarily further loosen its policy further in response. The weakness of the pound and the rising prices of oil means inflation could easily overshoot the Bank’s 2% target. Although Mark Carney, the BoE Governor, has indicated that the MPC will tolerate a temporary rise in price levels, it will become hard to justify maintaining that policy if inflation remains high for a long period of time. Thus the MPC may be forced to tighten its belt in order to prevent inflation turning into an unlikely period of hyperinflation, which will be very costly for the economy.

If this view is correct, then the pound should start to get its mojo back in the coming months. In the short-term however the technical outlook on the GBP/USD looks rather bearish as it continues to make lower lows and lower highs within its 3.5 month consolidation period. But with the cable now at the lower end of its range, the probability of seeing a bounce rises at an increasing rate by each passing day.

Time for a quick catch-up, before Wall Street opens for the week - giving the Dow Jones industrial average another tilt at the 20,000 mark.

The pound has slipped to a 10-week low after Theresa May appeared to hint on Sunday that Britain will lose its membership of the single market after Brexit.

Amid volatile trading, sterling is currently down almost 1.5 cents at $1.214.

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The pound is also having a bad day against the euro, down 1.1% at €1.153.

Investors are reacting to May’s appearance on Sky News’s Sunday with Sophy Ridge, in which she insisted Britain wouldn’t retain bits of its existing EU membership. “We are leaving. We are coming out. We are not going to be a member of the EU any longer.”

Asked about the selloff, the PM insisted her comments were consistent with her previous stance - and again vowed to get a good deal for the UK.

But experts believe some UK firms are going to suffer if Britain sheds its single market membership, with Commerzbank flagging up the risk of a Brexit disaster.

This is from Robin Bew of the Economist Intelligence Unit:

Other City experts have predicted months of volatility as Britain prepares to trigger Article 50 of the Lisbon Treaty, starting the clock ticking on its departure from the EU. Here’s a round-up of the latest comments.

And here’s a graph showing how the pound has been nearly as troubled as the Turkish lira and the Mexican peso of late.

But the weak pound is good news for the share prices of global companies listed in London. The FTSE 100 is up 17 points, and on track for a record-equalling 8th closing high in a row.

We’ve now got hold of Commerzbank’s latest comments about the pound, and fears of a Brexit disaster (as flagged up earlier).

It’s by analyst Esther Reichelt, who says:

Sterling is suffering after Prime Minister Theresa May said over the weekend that more detailed plans for the UK’s exit from the EU would be announced over the coming weeks.

This announcement was in defence of claims made during the recent resignation of Britain’s ambassador with the EU Ivan Rogers that the British government’s exit plans were muddled. She did not succeed there.

Until the government finally presents a concrete and convincing strategy market participants will increasingly fear a disaster. In particular as she signalled once again that the aim of controlling immigration was a red line she would not be willing to cross. That means that following Brexit the country is likely to lose access to the single market. Even though the US President-elect has already signalled an interest in closer ties with its former colonial masters which may well cushion the economic impact of the decision for the UK, what Larry Summers said in his interview about the US also applies to the UK: “if our strategy is to trade only with people that speak English that’s going to be a poor strategy”.

The FX market shares this view and as a result Sterling has come under pressure again this morning.

Ministers talk a lot about guaranteeing “access” to the European single market, but that’s not the same as being a member, of course.

Writing in the FT, legal expert David Allen Green puts his finger on the difference...

This is the second time that the pound has stumbled after Theresa May gave a Sunday TV interview.

Back in October, sterling suffered several sharp falls after the PM announced she’d trigger Article 50 within six months. Then, she also pledged to tighten up immigration from the EU, which fuelled fears that the UK would leave the single market (as the free movement of people, goods, services and capital are linked).

Trading has been volatile since, with the pound enjoying some good weeks (although plenty of bad ones too), as this chart from Bloomberg shows:

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Erik Nielsen, global chief economist at UniCredit, told Bloomberg that:

“It looks almost certainly now like a hard Brexit, and the market doesn’t like it.

It’s a political crisis in the brewing here, for sure.”