FTSE Struggles as Pound Hits post Brexit High and Carillion Collapses

European bourses spent much of the day in the red, on Monday, as a stronger euro and pound capped valuations. The Dax is heading towards the close 0.2% lower, whilst the FTSE is off by 0.1%. 

Pound & Euro extend gains against dollar 

The pound continues to capitalise on the weaker dollar, with GBP/USD is extending its gains into territory not seen since the Brexit referendum, back in June 2016. In addition to dollar weakness, hopes of a softer Brexit also continue to support the pound, following comments by the Spanish and Dutch finance ministers at the end of last week that they would push for a close tie between the UK and Europe post Brexit. 

These comments, which have since been down played by the corresponding governments have reawakened hopes of a soft Brexit. As a result, the pound is targeting $1.38, having jumped 250 points since early Friday. The EUR/USD was also seen extending gains in Monday’s session helped along by Friday’s political developments in Germany. 

The markets continued cheer a breakthrough in coalition talks between the SPD and Angela Merkel’s CDU party, ending months of political vacuum. The news has seen the euro jump close to 270 points versus the dollar since the announcement on Friday. Meanwhile the dollar continues to languish at multi year lows and a lack of fresh impetus leaves investors extending the previous selloff. 

Collapse of Carillion hits the government & other FTSE 250 firms 

In corporate news, there were no doubts over what the main story was, as British construction and service provider Carillion went into liquidation, thanks to its debt pile of £1.5 billion. Whilst the government has confirmed that it will continue to pay for Carillion worker which are providing public services, so as to reduce the impact, it was a costly mistake by the government to continue handing out contracts to the troubled firm, despite several profit warnings. Other firms in the FTSE 250 were also hit by the fall of Carillion, such as Galliford Try which has confirmed that they will take a financial hit from the collapse of Carillion. Galliford Try will now have to fork out an extra £40 million to complete a joint venture that it was working on with the failed group. Galliford Try traded close to 7% lower. Meanwhile, sector peer Balfour Beatty was also off by 3% moving into the close. 

US markets closed for public holiday 

The US markets are closed today for Martin Luther King Day; however, US futures are trading firmly higher, boosted by the weak dollar and optimism over earning season. Fourth quarter earnings releases will continue on Tuesday with the likes of Citigroup, United Health and Charles Schwab among those reporting.