By Barbara Kollmeyer
Domestically focused U.K. companies surged on Monday, amid optimism that the country will be able to reach a trade deal with the European Union before the end of the year.
The FTSE 250 index /zigman2/quotes/210598417/delayed UK:MCX +0.75% climbed 1.2% against a 0.2% rise for the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.19% , which traded flat and was pinned down by a surge in the pound. Sterling rose 1.4% against the dollar /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0080% at $1.3414, and 1% against the euro /zigman2/quotes/210561278/realtime/sampled GBPEUR +0.3649% at €1.1026.
In a joint statement on Sunday, U.K. Prime Minister Boris Johnson and Ursula von der Leyen, the president of the European Commission, said “deadlines been missed over and over” during protracted negotiations extending over the past 10 months on their future trade relationship.
Sunday had been seen as a firm date for an agreement to occur, or for a signal that a ‘no-deal’ Brexit would come ahead of the Dec. 31 deadline.
Large multinational companies that aren’t reliant on the U.K. market tend to benefit when the pound is weaker, and the opposite when it is moving higher. Smaller companies listed on the FTSE 250 tend to be focused more on the domestic economy.
“The FTSE 250 outperformance seen in early trade is largely a reversal of the declines seen in the lead up to this crucial round of negotiations,” said Joshua Mahony, senior market analyst at IG, in a note to clients. “With banks in particular doing well, it is evident that we will see assets with high U.K.-exposure all move in tandem as markets gauge exactly what kind of Brexit we will see come 1 January.”
Housing-related shares were among the early gainers, with real estate portal Rightmove /zigman2/quotes/201303150/delayed UK:RMV +2.58% up 3% as it forecast 4% national average price growth in 2021 , though it said price rises for newly marketed properties will be at a slower pace than this year. Shares of house builder Redrow /zigman2/quotes/206663416/delayed UK:RDW +1.69% climbed over 4%. On the broader index, investors also scooped up rivals Persimmon /zigman2/quotes/206444744/delayed UK:PSN +1.78% and Taylor Wimpey /zigman2/quotes/208623755/delayed UK:TW +1.76% .
“The double-whammy of Brexit and the expiry of [Chancellor of the Exchequer] Rishi Sunak’s stamp duty holiday will likely drive down demand for properties in Q1,” said Mahony. “Nevertheless, with housebuilders building substantial cash piles over the course of 2020, investors are looking beyond Q1 to what could be another positive year once the fears of Brexit are overcome.”
Shares of Polypipe climbed 11%, after the plastic materials supplier released an upbeat trading statement. “The Group enters the new year with a strong order book and some cautious optimism, although uncertainty currently exists about the effects of a no-deal Brexit,” said the company in a release.
Elsewhere, shares of retailer Marks & Spencer /zigman2/quotes/206225481/delayed UK:MKS +2.47% and pub group Mitchells & Butler /zigman2/quotes/209008939/delayed UK:MAB -1.57% climbed over 5% each, and movie-theater operator Cineworld /zigman2/quotes/206525056/delayed UK:CINE -2.01% climbed over 3%. As well, optimism over the rollout of COVID-19 vaccines was lifting sentiment, as the U.S. is now in the beginning stages of its own vaccination campaign.
Shares in British drug company AstraZeneca /zigman2/quotes/203048482/delayed UK:AZN +2.38% /zigman2/quotes/200304487/composite AZN +1.14% fell as much as 9%, as markets reacted to news that the company had agreed to buy U.S.-based Alexion Pharmaceuticals for $39 billion over the weekend.
Shares were down, on some investor fears that the company paid too much for Alexion, said Neil Wilson, chief market analyst for Markets.com, in a note to clients. “While the 45% premium may seem high, it’s probably not that significant when you consider the sector and the cash flow generation and revenue growth that it will bring,” he countered.