By Callum Keown
The FTSE 100 and the pound moved higher in tandem on Wednesday, as the European Union raised hopes of a post-Brexit trade deal and U.K. house prices reached a record high.
The U.K.’s blue-chip index /zigman2/quotes/210598409/delayed UK:UKX +1.15% , which typically moves inversely to the pound due to the international exposure of its constituents, climbed 0.9% as it followed global markets higher.
U.K. house builders led the index higher, after Office for National Statistics data showed average house prices grew 5.4% in the year to October to a record high of £245,000 ($331,000) — the fastest annual growth since 2016. Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV +2.18% climbed 4.7% and Persimmon /zigman2/quotes/206444744/delayed UK:PSN +2.34% moved 1.9% higher. Property investment and development company Segro /zigman2/quotes/205428601/delayed UK:SGRO +0.54% was 3.5% up for the day, while online real estate agent Rightmove /zigman2/quotes/201303150/delayed UK:RMV +1.44% rose 3.3%.
Sterling /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.3203% continued its rally, rising 0.3% to $1.3501 and reaching two-year highs, after European Commission President Ursula von der Leyen said there was “a path to an agreement now,” over a trade deal. She added that the U.K. and European Union had “found a way forward on most issues,” but the discussion over fisheries was still “very difficult,” according to the Twitter /zigman2/quotes/203180645/composite TWTR +3.23% account of EU spokesman Daniel Ferrie.
U.K. and EU leaders had promised to “go the extra mile” on Sunday and extend talks into this week. A deal must be agreed and ratified by Dec. 31 to avoid a ‘no-deal’ scenario.
Ian Tew, a sterling trader at Barclays, said the market was beginning to price in a stronger chance of a deal compared with last week. “From our view, the market is pricing 75% odds of the EU and U.K. coming to an agreement. Brexit has provided a clear catalyst for further performance vs. a weak U.S. dollar, but it’s worth keeping in mind that on a trade-weighted basis, sterling is still not that high,” he said.
The domestically-focused FTSE 250 /zigman2/quotes/210598417/delayed UK:MCX +1.21% made strong gains, climbing 1.2%. The positive sentiment came despite London and other parts of southeast England entering tier 3 — the U.K.’s toughest level of restrictions — in a bid to combat surging COVID-19 cases.
The four U.K. nations — England, Scotland, Wales and Northern Ireland — agreed to stick with relaxed coronavirus rules for five days over Christmas on Wednesday, despite pressure to review the decision. However, leaders issued stronger guidance over reducing social contacts, with U.K. Prime Minister Boris Johnson urging people to “exercise extreme caution.”
Progress toward a new U.S. coronavirus-stimulus package also buoyed investors, ahead of an expected update from the Federal Reserve on its bond-buying program.
A group of Democratic and Republican leaders met face-to-face on Tuesday night in a bid to strike a deal on a new bill proposal . Senate Majority Leader Mitch McConnell said the group agreed lawmakers wouldn’t leave Washington for the holidays without a deal on COVID-19 aid.