U.K. blue-chip stocks lost ground Monday, getting squeezed by a rally in the pound that came after Brussels and London agreed on the terms of a Brexit transition deal. Analysts were also pinning the retreat in part on expectations that the Bank of England and the U.S. Federal Reserve will signal this week how their respective monetary policies may be tightening. Micro Focus stock was the FTSE 100’s biggest loser as the software maker warned on its outlook and said its CEO has resigned. The FTSE 100 index slumped 1.7% to close at 7,042.93, suffering its biggest one-day percentage loss since early February. The pound jumped to $1.4037, up from $1.3944 late Friday in New York. Sterling’s rally came after news the EU and U.K. had agreed on the broad terms of a transition deal. Under the terms of the agreement, the U.K. will remain in the EU’s single market and customs union until the end of 2020, providing businesses with at least an extra 21 months to prepare for life outside the union. The transition period will also allow more time for negotiators to hammer out a post-Brexit trade agreement. A stronger pound sometimes weighs on the FTSE 100 as about 75% of the benchmark’s revenue is made overseas, and that revenue therefore shrinks when translated back into sterling.
Traders also dumped stocks ahead of two important central bank meetings later in the week. A BOE monetary policy decision is expected on Thursday after a U.S. Fed decision on Wednesday. The U.S. central bank is expected to raise interest rates for the first time this year, while analysts say the BOE could hint at a rate rise in May. Concerns over trade wars further lingered in the back of investors’ minds. The Trump administration has taken a hawkish stance on U.S. trade with China and is moving ahead with tariffs on foreign steel and aluminum. Micro Focus shares dived 46% for the software giant’s biggest ever one-day loss after the company said CEO Chris Hsu has resigned and warned that revenue for fiscal 2018 will fall more than previously anticipated.On the upside, Hammerson soared 24% for the FTSE 100’s biggest gain. The move came after the mall owner drew and rejected a 4.9 billion-pound ($6.9 billion) takeover offer from French real-estate investment company, whose shares were down 4%. William Hill PLC rose 4.2% along with other British gambling companies as a U.K. government crackdown on a key business —fixed-odds betting terminals —looked like it could be less drastic than feared. Barclays tacked on 3.6% after the British bank said activist shareholder Sherborne Investors Management LP has acquired a 5.2% stake.Melrose Industries on Monday lowered the acceptance condition for its hostile 8.1 billion-pound (offer for GKN, meaning it is lowering the barrier to the success of its takeover bid. In addition, Melrose said it will pay up to £1 billion into GKN’s pension scheme over the period of ownership. Shares of GKN ended 0.6% lower, while shares of Melrose dropped 0.7%.
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