Comments from the UK Prime Minister over the weekend have caused the Pound to sell off this morning with Theresa May indicating that the country will leave the EU single market. The Pound has fallen against all its major peers in light of this news and currently trades below the 1.22 handle against the US Dollar - the lowest level since late October.
Chance of a “hard” Brexit rises
It is quite remarkable that almost 6 months after the historic vote by the British public to leave the EU, still very little is known about the terms and conditions upon which this separation will be made. This is of particular concern given that Theresa May insists she will trigger Article 50 and thus begin the formal process of leaving the EU before the end of March. Mrs. May’s latest comments have cause a bit of a stir in the financial markets as it appears more likely that membership of the single market isn’t a top priority from the UK perspective at the negotiating table, with control over borders and laws superseding it. Official estimates of the economic impact of a Brexit on similar free trade agreement terms to Norway - which now seems the most likely case - suggest that the adverse effects could be twice as large in terms of growth when compared to leaving but retaining single market membership. This more hard-line approach looks set to cause greater economic turmoil in the near term but let’s not forget that many official economic forecasts on the economy following Brexit have proved inaccurate and overly pessimistic.
FTSE hits record highs on falling pound
The drop in the pound has boosted stocks in London this morning with the FTSE100 adding to last week’s impressive gains to post yet another all-time high. The best performing stocks on the index come from the mining sector which generates the vast majority of its revenues abroad and therefore benefits from a fall in the pound. Glencore (LON:GLEN), Anglo American (LON:AAL) and BHP Billiton (LON:BLT) are all enjoying bright start to the week and moving firmly higher in early trade. At the other end of the index is RBS (LON:RBS) and Lloyds Banking Group (LON:LLOY) with both taxpayer part-owned banks seeing some weakness. News this morning that the UK government is no longer the biggest shareholder in Lloyds after cutting its stake to less than 6% has failed to boost the share price. RBS remains 71.5% owned by the government. Chancellor of the Exchequer Philip Hammond has said that the fact they are no longer the largest shareholder is further evidence that the Treasury is on track to recover all of the £20bn injected into the bank during the financial crisis.
Aldi posts impressive festive results
Aldi has reported record trade over the key Christmas period with the discount supermarket announcing a 15% rise in December sales. Rather surprisingly the retailer stated that there was strong demand for its premium range, which has been launched to compete with higher-end retailers such as Waitrose and Marks & Spencer. The market share for Aldi has grown in recent years as the traditional big four supermarkets have struggled to adapt to the threat of new entrants who have undercut them on price. However news that Aldi is not just competing at the lower end of the market but has started to make inroads into the premium end comes as something of a surprise and could mean the threat to the high street’s traditional supermarkets is even greater than previously thought. Following the disappointing results announced from Next over the festive period last week, some were led to believe that it had been a bleak Christmas for retailers. This latest update from Aldi, as well as data from payment card company Visa that suggests the final three months of 2016 saw the strongest increase in consumer spending in two years will have gone some way to allay these fears.