Brussels’ chief negotiator Michel Barnier said of UK-EU trade talks on Friday that ‘very little useful time . . .  is left to us if this agreement is to take effect on January 1’
Prolonged Brexit trade talks have hit both the pound and the FTSE 100 © FT montage

Global stocks dropped and the pound weakened on Friday as political wrangling continued on both sides of the Atlantic over US fiscal stimulus and Brexit trade terms.

Wall Street retreated from record highs, with the S&P 500 down 0.4 per cent on the day, but up 1.3 per cent for the week. The technology-focused Nasdaq Composite lost 0.1 per cent, but posted a weekly gain of 3.1 per cent — its largest in six weeks.

Stocks trimmed their losses into the close as trading volumes surged because of “quadruple witching” — a day that brings the simultaneous expiration of stock index futures, stock index options, stock options and single stock futures.

More than 15bn shares traded across US exchanges, including the New York Stock Exchange and Nasdaq, more than 40 per cent above the average daily volume this year. Trading volumes in Tesla also jumped with shares hitting another record ahead of its inclusion into the S&P 500 at the end of play.

Line chart of Number of shares traded on US exchanges (bn) showing US stock trading volumes surge above 15bn as Tesla joins S&P 500

Through the day investors kept a close eye on Washington as US Senate leaders, in talks over a $900bn stimulus package, warned they would need to extend discussions through the weekend to resolve disagreements over the Federal Reserve’s emergency credit facilities, unemployment benefits and relief aid for cities and states.

Tensions have flared in the last-ditch negotiations as congressional Democrats and the incoming Biden administration have accused Republicans of jeopardising the deal by insisting on curbs to the Fed’s crisis lending powers.

In Europe, the continent-wide Stoxx 600 benchmark closed down 0.4 per cent on Friday, but was 1.5 per cent higher for the week.

Sterling fell 0.7 per cent against the dollar to $1.348, retreating from the two-year high set in the previous session. It is still up more than 1 per cent this week, as investors place bets on trade talks resulting in an agreement between the UK and EU. 

Currency traders were reacting to the latest statements from London and Brussels on the chances for a trade deal. Michel Barnier, the EU’s chief negotiator, warned on Friday that “very little useful time . . . is left to us if this agreement is to take effect on January 1” when Britain’s transition period ends.

The consensus among investors and analysts is that a trade deal will be signed, despite the mixed messages and missed deadlines that have come to characterise Britain’s transition talks.

“Our base case remains that a thin free trade agreement will be reached before the end of the year,” said Goldman Sachs strategist Sharon Bell. “That said, there is plenty of uncertainty around this.”

“During these Brexit talks, the pound has moved up with any positive headlines and doesn’t seem to move down as much on negative ones,” said Hetal Mehta, Europe economist at Legal & General Investment Management. “So there’s still a bias among sterling traders that a deal can be done.”

The yield on the US 10-year Treasury rose 0.02 percentage points to 0.949 per cent. Yields move inversely to price. The dollar, as measured against trading partners’ currencies, gained 0.2 per cent but is still trading around its lowest point against peers since April 2018.

Data released on Thursday showed initial unemployment claims in the US surged last week to a three-month high of 885,000, exceeding economists’ estimates of about 800,000.

The unexpected jump in new weekly jobless numbers could “provide US policymakers with a strong incentive to push the stimulus package through in the next few days”, said analysts at Rabobank.

“The need for the stimulus is now very clear,” added Louise Dudley, global equities portfolio manager at Federated Hermes, with a post-Thanksgiving surge in coronavirus cases meaning “there will be more shutdowns and therefore the need for more support”.

Additional reporting Eric Platt

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