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Dec. 9, 2020, 9:09 a.m. EST

Gains for U.K. stocks tempered by strong British pound as Brexit hopes rise

By Barbara Kollmeyer

London stocks rose on Wednesday, amid continued investor optimism as the U.K. started its COVID-19 vaccine campaign, but gains were tempered as Brexit deal hopes boosted the pound.

The FTSE 100 index (FTSE:UK:UKX) rose 0.4% to 6,583.12. The U.K. began its COVID-19 vaccine rollout on Tuesday with the shot from U.S. drugmaker Pfizer  (NYS:PFE) (LON:UK:0Q1N) and its German partner BioNTech’s  (NAS:BNTX) . That’s amid some concerns that London could be headed for another strict lockdown over rising cases in the city .

Shares of British Airways owner International Consolidated Airlines (LON:UK:IAG) climbed 5%. Leisure and travel companies such as IAG are linked to hopes that the economy will rebound as the COVID-19 vaccine continues to roll out.

The pound (XTUP:GBPUSD) gained 0.7% to $1.3447, ahead of a dinner meeting between U.K. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen in Brussels, aimed at trying to secure a post-Brexit trade deal. Fears of a ‘no-deal’ scenario when the transition period ends on Dec. 31 weighed on stocks on Tuesday.

There were encouraging comments  from Irish deputy prime minister Leo Varadkar, who said he believes  both sides have more to gain than lose from a deal , while Cabinet Office minister Michael Gove told Sky News there is now a “smoother glide path” toward a possible deal.

“I expect sterling could buckle if the two leaders fail to reconcile their differences this evening,” said Craig Erlam, senior market analyst, U.K. & EMEA, OANDA, in a note to clients. “That’s not to say they need to work out all the details, but if they leave that dinner claiming that the differences can’t be worked out, sterling could take a hammering.”

A strong pound can work against the FTSE 100 as many listed multinational companies derive revenue from overseas, and currency strength makes their goods less competitive.

Gains for banks and utilities were keeping the FTSE 100 in the black, with shares of HSBC Holding (NYS:HSBC) (LON:UK:HUKX) up 1% and Lloyds Banking Group (LON:UK:LLOY) (NYS:LYG) rising 1.5%.

Shares of National Grid (LON:UK:NG) climbed 3% after analysts at Citigroup lifted shares to buy from neutral. The analysts cited the upgrade to regulator Ofgem on Tuesday softening its stance on allowed return on equity by utility companies. SSE and National Grid are expected to consider the latest proposal and decide whether to appeal. Shares of SSE (LON:UK:SSE) rose 2.4%.

Shares of AB Foods (LON:UK:ABF) fell over 1%. The owner of retailer Primark commissioned a study by policy and research company Public First that calls for the government to save physical retail stores, and breathe new life into city centers and high streets.

“Shops are in a desperate battle to salvage Christmas following the end of the most recent lockdown measures in England and you can understand the argument for the state to help,” said AJ Bell investment director Russ Mould.

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