Lloyds Banking (NYSE:LYG)
Historical Stock Chart
6 Months : From Oct 2019 to Apr 2020
By Anna Isaac and Cailtin Ostroff
The British pound and stocks of banks and home builders rallied Tuesday on speculation that the U.K. and European Union may be close to finishing a draft divorce agreement.
The currency climbed 1% against the U.S. dollar, reaching its highest level in about four months and putting it on course to wipe out losses from earlier this year. Shares in the region's banks -- led by Ireland's AIB Group PLC and the U.K.'s Lloyds Banking Group PLC -- and in property developers such as Hammerson PLC were also buoyed.
Negotiators from both sides are closing in on a draft Brexit deal ahead of the midnight deadline, according to people familiar with the talks. The market moves suggested optimism that a breakthrough might finally be in sight, signaling an end to the logjam in negotiations that has almost paralyzed the U.K. economy for over three years. A deal would allow authorities and business leaders to turn their attention to bolstering growth and investment.
"A lot of the uncertainty that has been weighing on businesses and consumption would be lifted," said Andrew Wishart, a U.K. economist at research firm Capital Economics. "It could put rate hikes back on the agenda at the Bank of England."
Any agreement would have to take into account how to handle the border between Northern Ireland and the Republic of Ireland, an issue that has been a major hurdle in discussions so far. U.K. Prime Minister Boris Johnson would still need to secure approval for a deal from lawmakers and the European Council. Most crucially, the pact would also need support from the Democratic Unionist Party of Northern Ireland, which has previously resisted any difference in regulation between the region and the rest of the U.K.
"There's two phases to this: confirmation of a deal between Brussels and London, and then getting it through parliament," said Derek Halpenny, head of research, global markets EMEA at MUFG Bank.
The pound hit a high of $1.28, its highest since June 12, according to Dow Jones Market Data Group.
A confirmed deal could see sterling climb as high as $1.30 and rise further to $1.33 if the accord got parliament's approval, Mr. Halpenny said.
Sectors such as banks and airlines had already seen a recovery in share prices as prospects for a deal have improved. This effect could increase if it were confirmed, Mr. Halpenny said. "There's more risk premium to be taken out of those sectors."
While the banking sector as a whole has long faced Brexit pressures, Irish banks have particularly been hammered as they are seen as vulnerable to economic implications from the U.K.'s separation from the EU.
Shares in AIB rose 8.4% in Dublin, while Bank of Ireland Group PLC gained 6.6%. Both stocks have taken a beating this year, largely because of concerns surrounding Brexit and fears that a disorderly exit by the U.K. could make the business environment worse, hurting banking operations.
"A lot of pessimism was some time ago put into prices," said Anastasia Turdyeva, an analyst at S&P Global Inc. She said she expects the shares to remain volatile until there is more clarity about Brexit.
In London, Lloyds and Royal Bank of Scotland Group PLC both rose over 5%. Among real-estate firms, Hammerson surged 7% while Land Securities Group PLC climbed 6%.
Write to Anna Isaac at firstname.lastname@example.org
(END) Dow Jones Newswires
October 15, 2019 13:18 ET (17:18 GMT)
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