UKX FTSE 100 Index

By Sara Sjolin, MarketWatch

Pound falls as Brexit talks falter

U.K. stocks advanced on Friday, set to break a two-day losing streak, as the pound selloff resumed on signs Brexit discussions between Brussels and London are close to a painful breakdown.

Traders were also waiting for the second reading on first-quarter gross domestic product growth, due at 9:30 a.m. London time, or 4:30 a.m. Eastern Time.

What are markets doing?

The FTSE 100 index gained 0.4% to 7,745.68, trimming its weekly loss to 0.4%. The London benchmark has moved sharply lower over the last two days on increasing concerns over trade talks between the U.S. and China and worries over President Donald Trump's decision to pull out of a historic summit (http://www.marketwatch.com/story/north-korea-says-its-still-willing-to-meet-trump-any-time-2018-05-24) with North Korea.

The pound fell to $1.3351, from $1.3379 late Thursday in New York.

What is driving the market?

The fall in sterling provided a lift to the FTSE 100 on Friday. A weaker pound tends to boost the FTSE 100, as the index's components conduct the bulk of their business overseas and a softening in sterling lifts revenue when converted back into the U.K. currency.

Sterling was hit by concerns over the Brexit negotiations after European Union officials said the British government was "chasing a fantasy" in the talks, according to the Guardian newspaper. The comment came after a tense week of discussions, with the two sides fighting over the future security relationship. Fears are the lack of agreement could lead to a complete breakdown in negotiations.

(https://twitter.com/ryansabey/status/999917671251496962)

Bank of England Governor Mark Carney warned in a speech late Thursday that a "disorderly" Brexit could trigger another interest rate cut to support the British economy.

What data are coming up?

Traders will get a snapshot of how the U.K. economy fared in the first quarter later on Friday morning. The second reading on economic growth in the first three months of the year is expected to confirm an expansion of only 0.1%. That would be the weakest period in more than five years.

When the first GDP reading came out in late April, it shocked investors with how weak it was. At the time, it sent the pound sharply lower, as it was seen as completely ruling out a BOE rate hike in May.

At the May BOE meeting, the central bank kept rates on hold, with Carney citing temporary weakness in the economy as the reason to stay put.

What are strategists saying?

"At its latest policy meeting, the BOE noted that [the first-quarter slowdown] is likely in part due to the adverse weather in February and March, and that survey indicators suggest growth was somewhat stronger than implied by the preliminary estimate. Therefore, it would be interesting to see whether the Bank was right, or whether the second estimate will just confirm the first estimate," said Charalambos Pissouros, senior market analyst at JFD Brokers, in a note.

Stock movers

Shares of GVC Holdings PLC (GVC.LN) rose 2% after the sports-betting and gaming group said revenue increased in the 20-week period (http://www.marketwatch.com/story/gvc-revenue-up-despite-weather-hit-to-uk-sales-2018-05-25) ending May 20 even as U.K. sales were hit by adverse weather.

Royal Mail PLC (RMG.LN) dropped 3.1% after Berenberg cut the delivery company to sell from hold, according to Dow Jones Newswires. Berenberg said Royal Mail faces little profit growth in coming years, as its customers are likely to scale back on sending out marketing materials due to the EU's new General Data Protection Regulation. The GDPR privacy rules come into effect on Friday.

Read:5 things to know about the GDPR rules taking effect Friday -- which could cost big, bad tech billions (http://www.marketwatch.com/story/5-things-to-know-about-europes-new-data-rules-which-could-cost-big-bad-tech-billions-2018-03-21)

(END) Dow Jones Newswires

May 25, 2018 04:18 ET (08:18 GMT)

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