European shares, pound hit by fading Brexit deal outlook

NEW YORK — Stock markets and the pound stumbled on Friday after London and Brussels warned that a no-deal Brexit was now a strong possibility.

When closing bells rang, London stocks had fallen by a collective 0.8 per cent, while Frankfurt gave up 1.4 per cent and Paris was off by 0.8 per cent.

Wall Street also had a lackluster day, with both the S&P 500 and Nasdaq retreating even as the Dow eked out a gain.

"We are starting to see the first meaningful de-risking from investors amid concern over Brexit," remarked Stephen Innes, chief global markets strategist at AXI. 

Rabobank analyst Jane Foley added: "In the past few weeks, the market consensus has gone from being reasonably confident that the EU and the UK would agree on a skinny deal to fearing that no deal may now be the mostly likely outcome."

'Low expectations' 

EU chief Ursula von der Leyen has told the bloc's leaders there were "low expectations" that a post-Brexit trade deal could be struck with Britain, EU sources said. 

The clock was ticking down to the latest deadline, on Sunday, to make a call on prolonging negotiations or give up.

British Prime Minister Boris Johnson said the chances of not reaching a deal were "very, very likely", in which case Britain would trade with the EU on terms established by the World Trade Organisation.

Talks continued on Friday between EU and British negotiators but they were struggling to break deadlocks on issues that included fishing rights and fair trade regulations.

The possibility that Britain will leave the EU without a deal weighed on pound sterling as investors contemplated cross-Channel trade being subject to tariffs and quotas from January 1.

The Bank of England said Friday that financial services faced "some disruption" when the deadline passes, but added that UK commercial lenders — already dealing with effects of the coronavirus pandemic — were well-prepared.

Back in the United States, analysts cited disappointment at the lack of progress in congressional stimulus talks as a factor in the market's sluggish performance.

The US Senate approved a one-week budget stopgap that avoids a government shutdown, but the outlook for a long-awaited coronavirus relief package, without which analysts fear a renewed downturn in economic activity, remained uncertain.

Among individual stocks, Disney jumped 13.6 per cent after reporting that the company's year-old streaming TV service Disney+ had passed 86.8 million subscribers, beating its "wildest expectations," the company's CEO said.

The growth in Disney+ has helped offset weakness in other company businesses during the pandemic, especially theme parks.