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 UKX, +0.32%[1] 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[2] with North Korea.
The pound GBPUSD, -0.0374%[3] 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.
Headline of the day... pic.twitter.com/7mpPA9xAv1[4]
— Ryan Sabey (@ryansabey)
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. ...