Brexit weighs on pound, EU equities slide

By Margreet Dietz

The pound fell to its lowest point against the US dollar since October's flash crash. Photo / 123RF
The pound fell to its lowest point against the US dollar since October's flash crash. Photo / 123RF

European equities slid, with the UK's FTSE 100 Index breaking a record streak, and the British pound weakened amid fresh concerns about the UK's departure from the European Union.

The pound fell to its lowest point against the US dollar since October's flash crash amid concerns about a hard Brexit, the UK losing access to any trade and economic benefits with the EU, a day before the nation's Prime Minister Theresa May is slated to detail plans in a speech.

"Even if the pound recovers somewhat in London, it seems as though the realities of a hard Brexit are still not fully priced in," Sean Callow, senior strategist at Westpac in Sydney, told Bloomberg.

"It is difficult to make the case for the pound to avoid testing, probably breaking, the 'flash crash' lows in coming weeks."

Europe's Stoxx 600 Index ended the day with a 0.8 per cent slide from the previous close. The UK's FTSE 100 Index fell 0.2 per cent, France's CAC 40 Index dropped 0.8 per cent, while Germany's DAX Index declined 0.6 per cent.

The FTSE 100 Index's fall ended a record streak of 14 straight gains and 12 consecutive all-time highs.

In fresh deal news, shares of Essilor International SA closed 11.8 per cent higher in Paris after the French lens maker agreed to buy Italy's Luxottica Group, the maker of Ray-Ban sunglasses, for about 22.8 billion euros (US$24 billion). Luxottica shares closed 8.3 per cent stronger.

"Finally, after fifty years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof," Luxottica's 81-year-old founder Leonardo Del Vecchio said in a statement.

Meanwhile, US financial markets were closed for Martin Luther King Jr Day.

US President-elect Donald Trump will be sworn in on Friday. Since Trump's press conference last week, optimism that his policies will bolster growth and corporate profits has wavered.

Even if the pound recovers somewhat in London, it seems as though the realities of a hard Brexit are still not fully priced in.
Sean Callow, senior strategist at Westpac

"The market is taking a reality check from Trump euphoria, equity markets are moving sideways, the dollar has steadied and bond yields are down, allowing gold to recover," Julius Baer commodities analyst Carsten Menke told Reuters.

Trump took aim at German car makers, pushing their shares lower.

"If you want to build cars in the world, then I wish you all the best," Trump said in an interview with German newspaper Bild, published on Monday.

"You can build cars for the United States, but for every car that comes to the USA, you will pay 35 per cent tax."

"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 per cent tax, then you can forget that," Trump said.

- BusinessDesk

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