• Thu. Dec 15th, 2022

Investors watch Brexit talks closely after U.K. Prime Minister Boris Johnson warned last-ditch negotiations could fail

Dec 11, 2020

U.S. stock futures and European indexes slipped Friday as politicians signaled an increased likelihood of a disruptive break between the U.K. and European Union.Futures tied to the S&P 500 and the Dow Jones Industrial Average each declined 0.4%, while Nasdaq-100 futures fell 0.5%. The moves suggest that both the S&P 500 and the Dow were on course for a third consecutive daily decline. All three indexes are on track to end the week lower.In Europe, the Stoxx Europe 600 fell 0.9% after U.K. Prime Minister
Boris Johnsonsaid there was a strong possibility that efforts to reach a last-minute deal on trade with the EU would fail. The British pound fell 0.5% against the dollar to $1.32.
Weve been thinking for a long time that these comments are a negotiating tactic and that it is important for both sides to get a deal, said
Seema Shah,
chief strategist at Principal Global Advisors. But weve seen concerns starting to creep in this week that if the gap is too wide between the two sides then maybe it cant be breached.
The U.K.s current commercial and trading ties with the EU expire on Jan 1. Intensive talks are meant to take place this weekend. If a deal cant be struck, both sides are preparing for significant border disruption affecting trade worth close to $900 billion a year.
While negotiations would likely go down to the wire, investors are largely betting on a last-minute compromise, said Altaf Kassam, head of investment strategy at State Street Global Advisors in Europe.
We do think that politicians are economically pragmatic and a last-minute save is on the card, he said.
U.K. banks, seen as most exposed, led losses among European financials.
NatWest Group
fell 5%,
was down 4.6% and
Lloyds Banking Group
was 3.6% lower.
Also weighing on markets: U.S. talks on a Covid-19 relief package faced fresh setbacks. After signs of progress amid a bipartisan push for a roughly $900 billion stimulus deal, Senate Republicans suggested Thursday that they couldnt accept some aspects of the proposals.
Investors have largely priced in a stimulus deal, said Jeff Mills, chief investment officer of Bryn Mawr Trust, meaning negative news could have more of an impact than positive news.
There is a nontrivial chance that we get a deal in the coming weeks, said Mr. Mills. If it doesnt come by late January, when the new congress is sworn in, then I think we could see markets starting to get a bit nervous.
Despite lingering concerns about weak growth, stimulus talks and the pandemic, investors are betting that widespread rollout of Covid-19 vaccines could be well under way by next year.
Vaccines are giving markets the possibility to look through the negative noise, said Ms. Shah. A lot of investors are looking through to a six month horizon where they can see things getting back to normal.
A Food and Drug Administration panel Thursday recommended approving a Covid-19 vaccine developed by
and BioNTech, paving the way for the FDA to grant emergency-use authorization as early as Friday.
Investors later in the day will parse figures from University of Michigan consumer confidence survey, for clues on whether positive news on Covid-19 vaccines has lifted sentiment. The data are due at 10 a.m. ET. Economists expect the universitys consumer confidence index to fall to 75.5 from 77.0 in October.
Data from the Bureau of Labor Statistics on the cost of goods sold by producers last month will also be released at 8:30 a.m. ET. The Producer Price Index is forecast to have risen by a modest 0.1% in November.
In Asia, stocks were mostly lower with the Nikkei 225 falling 0.4% and the Shanghai Composite Index falling 1.4%.
Write to Will Horner at William.Horner@wsj.com
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