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Bank stocks and oil pullback
European stocks were mostly lower on Monday, tracking a pullback in the price of oil and weak open on Wall Street. The FTSE 100 was the exception to the rule thanks to a sharp drop in the British pound that lifts the value of international earnings.
Big multinationals led the gains thanks to the weaker Sterling but it was the more cautious end of the spectrum that won out. Safer stocks including tobacco and pharmaceuticals outperformed the riskier basic resource sector.
RBS next in line for government share sale
Shares of Lloyds sold off after the government revealed it has sold more of its stake in the bank. The share sale means the UK government has passed the mantle of being the biggest Lloyd’s shareholder to asset management firm Blackrock. The government has prudently been selling into a recovery in bank shares since the election of Donald Trump as US president initiated a “reflation trade” across markets. Shares of RBS fell further than Lloyds. The government selling its stake in the Lloyds simultaneously highlights the relatively weak position of RBS and puts it next in line for shares to be sold. The government shelved plans to sell more RBS shares in the summer when the share price fell too much to make it worthwhile for taxpayers.
FTSE 100 and Sterling mirror images
The FTSE and Sterling were mirror images of each other throughout the trading day. The FTSE rallied out of the gate thanks to some early losses in the pound following Theresa May’s interview with Sky News indicating the UK would exit the single market. The Prime Minister backtracked from the Hard Brexit talk in comments on Monday which helped the pound steady above its post-Brexit (excluding the flash crash) lows and the FTSE slip from a record high.
Bearish bets on Sterling had already been on the rise last week according to Commitments of Traders (COT) data. Theresa May merely confirmed the strong suspicion in markets that the UK is set for a hard exit from the EU, quite possibly without any form of transition period. The UK PM reiterated on Monday that the government was targeting an “ambitious, good and best possible deal” with the rest of the EU. Ultimately no new information has been revealed on the UK’s negotiating stance – but that’s precisely the problem.
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