LONDON MARKETS : FTSE 100 Slumps As Pound Rallies On EU Agreement To Brexit Transition
By Victor Reklaitis and Sara Sjolin, MarketWatch
Micro Focus shares plunge as CEO exits; Hammerson's stock soars after takeover offer
U.K. blue-chip stocks lost ground Monday, getting squeezed by a rally in the pound that came after Brussels and London agreed on the terms of a Brexit transition deal.
Analysts were also pinning the retreat in part on expectations that the Bank of England and the U.S. Federal Reserve will signal this week how their respective monetary policies may be tightening.
Micro Focus International PLC's stock was the FTSE 100's biggest loser as the software maker warned on its outlook and said its CEO has resigned.
How markets are moving
The FTSE 100 index slumped 1.7% to close at 7,042.93, suffering its biggest one-day percentage loss since early February.
The pound jumped to $1.4037, up from $1.3944 late Friday in New York.
What's driving markets
Sterling's rally came after news the EU and U.K. had agreed on the broad terms of a transition deal. Under the terms of the agreement, the U.K. will remain in the EU's single market and customs union until the end of 2020, providing businesses with at least an extra 21 months to prepare for life outside the union. The transition period will also allow more time for negotiators to hammer out a post-Brexit trade agreement.
A stronger pound sometimes weighs on the FTSE 100 as about 75% of the benchmark's revenue is made overseas, and that revenue therefore shrinks when translated back into sterling.
Traders also dumped stocks ahead of two important central bank meetings later in the week. A BOE monetary policy decision is expected on Thursday after a U.S. Fed decision on Wednesday. The U.S. central bank is expected to raise interest rates for the first time this year, while analysts say the BOE could hint at a rate rise in May.
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Concerns over trade wars further lingered in the back of investors' minds. The Trump administration has taken a hawkish stance on U.S. trade with China and is moving ahead with tariffs on foreign steel and aluminum.
What strategists are saying
"The EU and Britain have made good progress on certain aspects of the Brexit negotiations, however other area such as the Northern Irish border require more work. The U.K. has succumbed to almost all of the EU's demands as [U.K. Brexit negotiator David] Davis & Co. are so desperately keen to move forward to the next phase -- the post Brexit trade deal. This includes a backstop agreement for Northern Ireland remaining in the single market in the case that no other solution is found," said Fiona Cincotta, senior market analyst at City Index, in a note.
Micro Focus shares (>> company sheet) dived 46% for the software giant's biggest ever one-day loss after the company said CEO Chris Hsu has resigned and warned that revenue for fiscal 2018 will fall more than previously anticipated.
On the upside, Hammerson PLC soared 24% for the FTSE 100's biggest gain. The move came after the mall owner drew and rejected a 4.9 billion-pound ($6.9 billion) takeover offer from French real-estate investment company Klepierre SA (>> company sheet) , whose shares were down 4%.
William Hill PLC rose 4.2% along with other British gambling companies as a U.K. government crackdown on a key business -- fixed-odds betting terminals -- looked like it could be less drastic than feared.
A commission is "recommending maximum stakes on fixed-odds betting terminals should be cut to GBP30, not the GBP2 as feared," said Neil Wilson, ETX Capital's senior market analyst, in a note. "This should be a relief for the sector as the worst-case scenario looks to have been avoided."
Barclays PLC tacked on 3.6% after the British bank said activist shareholder Sherborne Investors Management LP has acquired a 5.2% stake .
Melrose Industries PLC on Monday lowered the acceptance condition for its hostile 8.1 billion-pound ($11.3 billion) offer for GKN PLC , meaning it is lowering the barrier to the success of its takeover bid. In addition, Melrose said it will pay up to GBP1 billion into GKN's pension scheme over the period of ownership. Shares of GKN ended 0.6% lower, while shares of Melrose dropped 0.7%.