European Stocks Post First Weekly Drop in Six Amid Brexit Woes

European equities fell, extending their first weekly drop since late October, as the prospects of a no-deal Brexit increased and U.S. stimulus negotiations continued.

The Stoxx Europe 600 Index declined 0.8% by the close in London, bringing the loss for the week to 1%. Telecoms were the worst performers as Ericsson slumped after suing Samsung Electronics Co. in the U.S., risking a hit to its operating income.

The U.K.’s FTSE 100 Index and the midcap FTSE 250 Index fell after European Commission President Ursula von der Leyen and British Prime Minister Boris Johnson both warned that a no-deal Brexit is looming on Dec. 31 as they continued last-ditch talks to try to reach a deal before Sunday.

Stocks are retreating after surging to a nine-month high on bets that progress on coronavirus vaccines will lead to an economic recovery. Setbacks in vaccine trials of Sanofi and GlaxoSmithKline Plc tempered some of that optimism on Friday, while cases and deaths from Covid-19 rose in Germany.

Still, strategists expect the equities rally to continue into next year, predicting the Stoxx 600 will rise 6.6% from Wednesday’s close through end-2021.

European Stocks Post First Weekly Drop in Six Amid Brexit Woes

“Equities had an impressive run and some consolidation thus seems logical,” Barclays Plc strategists led by Emmanuel Cau wrote in a note, while reiterating that they still expect stocks to grind higher into the new year. “Stop-and-go lockdowns might continue through the winter before mass vaccination allows full re-opening in 2021 and rising risk of a no deal Brexit could also challenge bullish market narrative into the year-end.”

Domestic U.K. stocks underperformed on Friday, especially Brexit-sensitive sectors such as housebuilders. Travel and leisure shares were also pulled lower by concerns about tougher restrictions on London.

Banking stocks were also down, with the Stoxx 600 Banks Index losing 6.2% this week in the worst performance since late September. European regulators are considering whether to cap dividend payments for only the strongest lenders in the first nine months at about 20% of profit, people with knowledge of the matter said.

Looking at fund flows, European stock funds had their largest inflows since July with $0.9 billion in the week through Dec. 9, according to the latest data from Bank of America Corp. and EPFR Global.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.