Utility shares slip; German political uncertainty rattles markets
British blue-chip stocks fell Monday, pulling the FTSE 100 toward a two-week low, as utilities shares slipped and a rise in the pound put some pressure on exporters.
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A collapse in talks between German political parties aimed at forming a governing coalition sent ripples through markets, as it put German Chancellor Angela Merkel's leadership in doubt and raised the prospect of a snap election.
Meanwhile, energy stocks were mixed as the parent company of British Gas said it will make changes to the tariffs it offers to customers.
What markets are doing: The FTSE 100 index lost 0.4% to 7,351.18, with only the consumer services sector printing a small rise. The basic materials and financial groups were losing the most.
The London benchmark was on track for its seventh loss in eight sessions. On Friday, it slipped 0.1% (http://www.marketwatch.com/story/ftse-100-dips-as-pound-rises-on-news-mueller-subpoenaed-trump-campaign-2017-11-17) and logged a weekly decline of 0.7%.
The pound traded at $1.3246, up from $1.3216 late Friday in New York. Against the euro, sterling bought EUR1.1249, pulling back from EUR1.1207 late Friday.
What's moving markets: The breakdown of the negotiations to form a "Jamaica" governing coalition of parties in Germany rattled London-listed shares alongside the euro and European equities.
On Sunday, the pro-business Free Democratic Party ended talks about forming a coalition government (http://www.marketwatch.com/story/euro-plummets-as-uncertainty-in-germany-rattles-markets-2017-11-19) with Merkel's Christian Democratic Union and the center-left Greens. That puts Merkel's fourth term as chancellor in doubt, as well as raising the prospect of a minority government and perhaps eventually a new general election if the situation can't be resolved.
But German equities and the euro pared earlier losses following a Monday report that the FDP said it would support a minority government.
The pound was higher across the board. The move came after Chancellor Philip Hammond signaled the U.K. is prepared to increase the payment by the U.K. to leave the European Union -- the so-called divorce bill. Media reports said the payment could be raised by by EUR20 billion to more than EUR40 billion, closing in on the EUR60 billion the EU has asked for.
May, whose leadership has been weakened by ministerial losses, meets with her cabinet on Monday to hash out the issue of the divorce bill.
What strategists are saying: "There is now a very real possibility that Angela Merkel may lose her position as German Chancellor with the prospect of new German elections increasingly likely. This may be some way off happening for now, but the markets are reacting," said Richard Perry, market analyst at Hantec Markets.
"The pound is better bid as Chancellor Philip Hammond could agree to pay a higher EU divorce bill, which could help moving on with the Brexit negotiations," said LCG senior market analyst Ipek Ozkardeskaya.
"If the U.K. decides to increase its bid for a Brexit deal, the chances of fiscal gifts will likely be limited. Chancellor Hammond will likely display a cautious budget plan and the Bank of England will likely stay accommodative," Ozkardeskaya said.
The budget will be presented on Wednesday.
Stock movers: Centrica PLC (CNA.LN) was fractionally higher after the British Gas parent said it's planning withdraw its standard variable tariff (http://www.marketwatch.com/story/centrica-to-pull-back-on-standard-variable-tariff-2017-11-20) for new customers and encourage existing customers to move to other products.
National Grid PLC (NG.LN) shares slipped 0.2%. SSE PLC (SSE.LN) was down 0.5% after energy regulator Ofgem said it will investigate the company's "cheapest tariff" messaging in its annual statements.
Mediclinic International PLC (MDC.LN) fell 3.3% after the private hospital company said it's ditching plans to make an offer (http://www.marketwatch.com/story/mediclinic-no-longer-plans-to-make-offer-for-spire-2017-11-20) to buy Spire Healthcare Group PLC (SPI.LN) . Spire shares fell 5.3% on the mid-cap FTSE 250 index.
Glencore PLC (GLEN.LN) shed 0.9% after the mining company said it has nominated three directors to Katanga Mining Ltd. (KAT.T) to oversee efforts to strengthen corporate governance at the copper mine. (http://www.marketwatch.com/story/glencore-to-strengthen-oversight-of-katanga-mine-2017-11-20)
(END) Dow Jones Newswires
November 20, 2017 05:09 ET (10:09 GMT)