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Pound trims gains against euro in choppy trade and FTSE 100 rises after Theresa May triggers Article 50

Tara Cunningham
Prime Minister Theresa May signing a letter of notification to the President of the European Council setting out the United Kingdom's intention to withdraw from the European Union  -  JAY ALLEN

7:03PM

Markets wrap: Markets shrug off formal triggering of Article 50

Financial markets shrugged off the well-flagged formal triggering of the UK’s exit from the European Union.

The conciliatory tone struck in Prime Minister Theresa May’s letter to EU Council President Donald Tusk minimised volatility on currency markets, in what marked the start of an uncertain two-year process of negotiations.

Joshua Mahony, of IG, said: “ The lack of any real fire and divisiveness on either side will have no doubt been responsible for what was a fairly orderly day for the pound, all things considered.”

Sterling, which touched an eight-day low of $1.2377 in Asian trading, climbed 0.2pc to $1.2478 upon confirmation that Article 50 had been triggered. However, in afternoon trade, it slipped back to a low of $1.2403. In March, the pound has traded within a range of $1.21-$1.26 against the US dollar.

The pound has traded in a range of $1.21-$1.26 this month. Credit: Bloomberg

Against the euro, the pound climbed by as much as 0.64pc to €1.1595 immediately after formal divorce proceedings began. However, in afternoon trade, it too trimmed its gains, before closing up 0.18pc at €1.1542.

As the triggering of Article 50 was well anticipated, most analysts believed it was already priced into the market, unlike June 23, when the pound suffered its biggest one-day fall since free-floating exchange rates when Britain voted to leave the EU.

Neil Wilson, of ETX Capital, said: “We might have expected a touch more volatility as the UK delivered the letter but markets were pretty calm. They may not stay that way.”

The pound climbed by as much as 0.64pc against the euro before trimming its gains in afternoon trade.  Credit: Bloomberg

Meanwhile, the head of the EU’s rotating presidency Malta's Prime Minister Joseph Muscat said the persistent pound weakness will need to be discussed during Brexit negotiations.

Speaking at a news conference after Article 50 was invoked, he said: “The pound is making some products less competitive for the Europeans, more competitive for the British.”

On equity markets, the immediate reaction to the official launch of Brexit proceedings swung the FTSE 100 into the red. The blue chip index fell by as much as 0.4pc, before ending the day 0.41pc higher at 7,373.72.

The more domestically-focused FTSE 250 index closed 0.13pc, after skidding 0.21pc in afternoon trade.

Although last year's EU referendum prompted an initial sharp sell-off in equities, the FTSE 100, which  is comprised of predominantly international, dollar-earning companies, quickly recovered, and is currently 16pc higher from its pre-Brexit levels.

UKX

However, the FTSE Local UK index,  which includes companies that generate more than 70pc of their revenues domestically, remains 0.96pc off its pre-Brexit levels.

That's it for today, we're back tomorrow from 8.30am with more markets coverage. 

6:11PM

Market report: 3i enjoys best day in nine months on rating upgrade

Private equity firm 3i Group enjoyed its best day in nine months after Morgan Stanley singled out discount retailer Action as a “star” performer in its investment portfolio.

The US investment bank upgraded its rating from “equal-weight” to “overweight” and forecast underlying earnings growth of 16pc by March 2018 backed by a robust performance from Action, which is estimated to account for 40pc of 3i’s private equity portfolio.

“Action has become the key asset in the 3i portfolio,” analyst Geoff Ruddell noted.

In September 2011, 3i invested around £114m for a 43pc direct stake in Action. Since then, the FTSE 100 company has recouped around five times its original investment. Morgan Stanley estimates that its stake is now worth £1.4bn.

3i

While 3i values Action at €5.2bn as at December-end last year, Morgan Stanley thinks this figure is “significantly too low”. The bank's model estimates an enterprise value of €10.6bn.

The bullish broker note lifted shares to the top of the blue chip index, up 40p, or 5.7pc, to 740.5p.

On the wider market, the FTSE 100 endured a volatile trading session after Prime Minister Theresa May formally began Britain’s divorce from the EU. However, it closed 30.30 points, or 0.41pc, higher at 7,373.72.

UKX

Energy stocks rallied buoyed by a bounce in Brent crude prices after data from the Energy Information Administration showed US crude inventories grew less than anticipated last week. BP jumped 7.8p to 461.2p, Royal Dutch Shell B shares advanced 18.5p to £22.28 and mid-cap Tullow Oil rose 6.1p to 220p.

Copper hit its highest level in more than a week lifting mining stocks. BHP Billiton added 33p to £12.60 and Antofagasta closed up 17.5p at 816p.

BHP Billiton

Elsewhere, shares in London Stock Exchange climbed 82p to £31.06 after it promised to initiate a £200m share buyback after the EU blocked its €29bn merger with Deutsche Boerse.The termination of the merger also led to speculation of a possible counter offer from a US-based exchange.

Engine maker Rolls Royce motored 5.5p higher to 759p on the back of a price target upgrade from Deutsche Bank, while medical technology giant Convatec added 4.1p to 273p after private equity firms Nordic Capital and Avista offloaded £975m of shares in the company.

Meanwhile, shares in tour operator TUI dropped 12p to £11.23 despite reiterating its full-year profit target of at least 10pc growth. However, unlike its peer Thomas Cook, it did not see any recovery in its Turkish market. Panmure Gordon reiterated its “sell rating”, with analyst Mark Irvine-Fortescue adding that its valuation looks “vulnerable”.

TUI

Shares in airlines also came under pressure after Ryanair warned there is “a distinct possibility” that there may be no flights between the UK and Europe for a period of time after March 2019. British Airways owner IAG fell 4.5p to 530.5p, easyJet lost 7.5p to 991p and Ryanair dropped 0.2c to €14.14.

IAG

On the mid-cap index, Polymetal tumbled 57p to 983p on the back of a rating downgrade. JP Morgan cut its rating to “underweight” from “neutral” as it expects the gold miner’s outperformance to “run out of steam” on foreign exchange rate headwinds.

Its peer Acacia was also downgraded  to “neutral” by JP Morgan, sending shares 13.6p lower to 442.7p.

Acacia

Annuity provider JRP also lost ground, down 3.6p to 135.3p,  as two of its top investors, Cinven and Permira around a 10.2pc combined stake in the business.

On the other side, Nostrum Oil and Gas rallied 30p to 461.9p after Credit Suisse hiked its rating to “neutral” from outperform”.

Pummeled by disappointing full-year results, newspaper publisher Johnston Press plunged 9.1pc to 20p. The company posted a full-year pre-tax loss of £300m and revenues of £221.5m, below expectations.

Finally, Aim-listed natural resources investing firm Metal Tiger jumped 2.4pc after it announced a private placing of £4.29m, its largest placing to date.

5:11PM

Dollar index hits fresh eight-day high after remarks by Fed's Evans 

The dollar rose to its highest in more than a week on Wednesday on outlooks for US and European interest rates and as investors saw the selloff on US President Donald Trump's healthcare setback as overdone.

Reuters reported European Central Bank policymakers were wary of changing their policy message after tweaks this month upset investors and raised chances of a surge in borrowing costs. 

The euro EUR fell to $1.0741 following the report, its lowest since March 21. That propelled the dollar index, which tracks the greenback against a basket of rival currencies, to 100.130, its highest since March 21.

The dollar also got a boost from Chicago Fed President Charles Evans, who said he was in line with most of his colleagues in supporting further rate hikes this year. Evans is known as one of the Fed's most consistent supporters of low interest rates. 

The dollar fell to its lowest in four months on Friday after the U.S. House of Representatives pulled a bill to rewrite the American healthcare system backed by President Donald Trump. Investors saw it as an indication Trump was likely to have difficulty with other parts of his agenda including tax reform and fiscal spending that are likely to increase US inflation.

Those fears may have been overdone, analysts said, and with Fed officials still lining up to support further interest rate hikes, the dollar is on solid footing.

Credit: Bloomberg

"The selloff in the dollar that we saw in reaction to the news Friday was probably a bit of an overreaction," said Shaun Osborne, currency strategist at Scotia Capital in Toronto. "The underlying faith in the reflation trade is coming back a little bit today."

Osborne also pointed to technical factors in the dollar/euro trade as the euro has approached the $1.09 mark.

"It really boils down to the fact that the euro rallied, it turned around and it’s pretty expensive to be short dollars at this point," he said.

Report from Reuters

4:40PM

European bourses close higher after UK triggers Article 50

Despite a small blip after the UK invoked Article 50 earlier today, European bourses reversed their losses and closed in positive territory. 

By close of play: 

  • FTSE 100: +0.41pc
  • DAX: +0.33pc
  • CAC 40: +0.33pc
  • IBEX: -0.32pc

UKX

 Joshua Mahony, of IG, said: "A historic day for the UK and Europe as a whole has been matched by a suitably volatile day for the FTSE, with initial gains fading to red, only to rebound into the close. Perhaps today’s FTSE trade was a precursor of the times we have ahead both economically and emotionally, as this painful divorce progresses from stage to stage. First came disbelief, then came denial (calls for a second referendum), and today we moved into the reality phase, as the UK and EU alike realised that there is no going back. The forthcoming years will no doubt prove volatile and unpredictable, yet ultimately the end result is what matters most. For these negotiations will play a huge role in dictating the future  prosperity and unity of the UK." 

4:18PM

Conciliatory tone minimises sterling volatility

Joshua Mahony, of IG, says Theresa May's conciliatory tone minimised sterling volatility when she triggered Article 50 earlier today. In London trading, the pound hit a day's high of $1.2478 against the US dollar, before skidding back to £1.2419.

He Mahony added: "Despite a degree of hostility in recent months, today was surprisingly cordial, with the conciliatory tone struck in Theresa May’s letter being matched by Tusk’s decision to proclaim ‘we already miss you’. The lack of any real fire and divisiveness on either side will have no doubt been responsible for what was a fairly orderly day for the pound, all things considered."

3:51PM

FTSE 100 turns positive in afternoon trade

The FTSE 100 has turned positive in afternoon trade after faltering after Article 50 was triggered earlier this afternoon. 

The blue chip index is now trading up 0.39pc at 7,371.71.

UKX 3:35PM

Stock market returns: 23 June 2016 - 28 March 2017

After the UK triggered Article 50 today, here are the scores on the doors in key UK markets since the referendum vote on June 23 last year:

  1. FTSE 100: +19.1pc
  2. FTSE 250: +11.3pc
  3. FTSE All Share: +17.8pc
  4. FTSE Small Cap: +19.6pc

(Figures from Hargreaves Lansdown)

Interestingly, small caps have outperformed the FTSE 100. The FTSE 100  is comprised of predominantly international, dollar-earning companies, who have received an accounting-related boost from the persistent pound weakness. Meanwhile, the small caps are more domestically-focused. 

UKX

Laith Khalaf, Senior Analyst, Hargreaves Lansdown, said: "The share prices of smaller companies are often driven by more company specific developments than large macro events, which may go some way to explaining this phenomenon. The lower liquidity of these stocks also means that investors tend to be long term by nature, and perhaps therefore more willing to ride out the volatility in the weeks following the referendum last summer." 

3:12PM

EU presidency: Weaker sterling must be discussed during Brexit talks

The pound weakness will need to discussed during Brexit negotiations, the head of the EU's rotating presidency said this afternoon. 

Speaking in a news conference after Article 50 was triggered, Malta's Prime Minister Joseph Muscat said: "There are consequences for everyone ... that are very obvious.

"There is one that the countries of the euro area are experiencing, the change in the value of the pound sterling," he said, citing the higher prices of goods, services and holidays for Britons coming to the euro zone, of which Malta is a member.

"It's making some products less competitive for the Europeans, more competitive for the British," Muscat said.

Britain's permanent representative to the European Union Tim Barrow leaves after he delivered British Prime Minister Theresa May's Brexit letter to EU Council President Donald Tusk in Brussels Credit: Yves Herman/Reuters

He added that  the eurozone would need to discuss the issue "not to come up with a fixed exchange rate but because some companies will need help". 

Although the pound had a muted response to this afternoon's triggering of Article 50, it has fallen dramatically since the referendum last June. On June 23,  it plunged by as much as 10.68pc from $1.5048 to $1.3228. Today, it is trading at $1.2430 against the US dollar. 

2:52PM

GBP: backing away from Article 50 highs as concerns remain

The pound has continued to pull back from its intrday high and is now down 0.45pc on the day at $1.2428 against the US dollar. 

Kathleen Brooks, of City Index, said: "The outlook for GBP/USD has dimmed in recent sessions as the spread between UK and US 10-year yields has once again turned south after staging a recent recovery. This yield spread tends to move closely with GBP/USD, and at these levels it is hard to see how the pound can meaningfully rally. The pound fared slightly better versus the euro today, but it also lost ground vs. the single currency this afternoon.

Credit: City Index

"We continue to think that 0.8550-90 – a key sma support zone- can limit the downside for EURGBP in the near-term. While we think that the bulk of GBP selling has already happened, and acknowledge that GBP short positioning is at extreme levels, sterling could still experience bouts of weakness as Brexit negotiations begin to take place. Overall, we are moving to a new phase of Brexit as the UK and EU hash out the detail of the divorce plans. As mentioned above, this could potentially impact every sector and company in the FTSE 100, which, in our view, leaves UK stocks more vulnerable to losses compared to the pound over the coming months."

2:49PM

The EY Brexit Tracker: Majority of companies have not yet made any public statements about the impact of Brexit

Almost 70pc of UK companies have not made any public statements about the impact of Brexit, the EY Brexit Tracker has shown. 

The EY Brexit Tracker tracks the public statements made by 222 of the largest financial services companies with significant operations in the UK across wealth and asset management firms, investment and retail banks, private equity, insurance and FinTech. The tracker captures statements made on key issues across sub-sectors relating to staffing, domicile, financial impact, policy asks, product changes, remuneration and opportunities.

Here are some of the key findings from the EY Brexit Tracker: 

  1. 69pc have not yet made any public statements about the impact which Brexit could have on their domicile or where their major operations and staff are located.
  2. 23pc (53 out of 222) of the companies who have made a public announcement say they are actively moving some staff or part of their operations out of the UK, or that they are reviewing their domicile as a result of Brexit.

Based on analysis of the Annual Results Statements of FTSE 100 Banks (February 2017):

  1. 20 mentions of Brexit or the EU referendum in the recent annual results statements of the five banks in the FTSE100.
  2. 20pc (1 out of 5) of FTSE 100 banks said that some of their staff will need to be relocated abroad as a result of Brexit.  
  3. 7pc (16 out of 222) have proactively reaffirmed their commitment to keeping their operations in the UK.
  4. 18 (13pc of companies tracked in those sectors) major banks, asset managers and insurers have opened or bolstered EU subsidiaries since the Referendum.  

2:44PM

Eversheds Sutherland: UK Businesses should be lobbying hard for Government to prioritise transitional arrangements

Andrew Henderson, financial regulatory partner at Eversheds Sutherland, reckons companies should be focusing on reviewing and planning for a variety of post-Brexit outcomes around their people and recruitment, their reliance on EU freedoms to provide cross-border services or establish branches, analysing their trading networks, and reviewing all cross-border contracts and counter party arrangements.

"As part of their planning, businesses should be lobbying hard to ensure that the Government puts the negotiation of effective transitional arrangements at the top of its negotiating agenda. With the massive legislative job facing the Government, the time they buy through an effective transitional period will benefit them as much, if not more, than the businesses having to brace themselves for change.

“It's clear to everyone working on Brexit that it's a huge legislative undertaking, and perhaps not enough was made of the enormity of this upcoming headache for lawmakers and its knock-on effects during pre-referendum campaigning.

“For businesses, it’s important they focus on what they can control during this period of uncertainty – their own business – and get their house in order to make the best of the current and future situation. Our own research found that businesses are dangerously underprepared for Brexit, with 80% saying they have not taken any further steps to prepare, opting instead for a ‘wait and see’ approach. This is despite 96% of them saying Brexit is an agenda item at their senior/board level.”

Brexit | What happens next? 2:08PM

ING: What we've learnt today, and why it's bad for the pound.

Here are some interesting takeaways from ING on what we've learnt today and why it is bad for the pound:

  1. Three year transition period:  A transitional arrangement once the two year negotiation period has elapsed should “not exceed” three years, as it cannot “be a substitute for Union membership”. That is a relatively short amount of time to negotiate a full trade deal. Remember it took 7 years for the EU to sign a deal with Canada.
  2. No sector-specific deals... including on finance: The EU opposes a deal with “piecemeal or sectoral provisions”. That includes finance – the EU wants to avoid giving “preferential” single market access. The UK wants finance to be part of a future free trade deal. But in absence of financial “passporting”, the UK may seek to use under “equivalence” rules. The UK’s standards of regulation/banking supervision would need to be judged the same/more stringent than in the EU.
  3. No deals with non-EU countries before Brexit: The EU notes that the UK cannot enter into negotiations on trade deals with “third countries” whilst it is still a member state. The UK is keen to negotiate elsewhere, given that exports to the EU have grown less quickly than exports to non-EU countries over the past decade (5pc versus 60pc growth).
  4. Exit deals before trade deals: This is nothing new, but the EU has reiterated that only if “substantial progress” is made on withdrawal agreements, then “talks could start” on future deals. The UK is keen to agree a transition period early on. EU Chief Negotiator Barnier says he wants to agree the UK’s exit costs before anything else, and that it could take until December this year for that to happen.

ING also reckons that there is nothing stopping the pound from trading with a 5pc short-term risk premium in a throwback to price action seen in October last year. 

Strategists added: "Given that the UK has more to lose from a ‘cliff-edge’ Brexit, GBP markets would have to bear the initial cost of this lack of clarity. The risks are that prolonged uncertainty over the UK investment climate leads to a more permanent loss of investment – requiring further downward GBP adjustment." 

2:03PM

Pound trading where it was before Theresa May's statement

So the little uptick in sterling didn't last very long, as the local currency is pretty much back where it was before Theresa May made her statement. 

Adam Chester, Head of Economics for Lloyds Bank Commercial Banking says:

‘There has been very little market reaction so far to the triggering of Article 50.  The pound initially firmed slightly, hitting an intra-day high close to €1.16 and $1.25.  But it has since retraced to trade pretty much where it was before the PM made her statement.  Meanwhile,  the yield on the UK’s 10-yr government benchmark has eased slightly, to 1.16pc.

“At the margin, it seems market participants have taken some comfort from the conciliatory tone adopted by the Prime Minister. Her desire to achieve an orderly withdrawal is clearly expressed in the tone of her statement and the Article 50 letter.

“It is, however, early days. Having set out the UK’s position, the focus will now shift to the EU’s response and, in particular, the draft negotiating guidelines that that the EU is expected to publish over the next couple of days.”

1:47PM

Pound trims gains in choppy trade after Brexit is formally triggered

Choppy trade continues on the currency markets. The pound has surrendered some of its gains following the triggering of Article 50. It is now off by 0.4pc against the dollar at $1.2427 having climbed to $1.2478. 

Meanwhile, against the euro, the pound is up 0.21pc at €1.1545, having jumped 0.64pc to €1.1595 in the immediate aftermath of invoking Article 50.

Credit: Bloomberg

1:29PM

Brexit Day: Theresa May says there is 'no turning back' as she formally triggers Article 50 

Head over to our live politics blog for all the latest on Article 50: Brexit Day: Theresa May says there is 'no turning back' as she formally triggers Article 50 

European Council president Donald Tusk said that the triggering of Article 50 was not a happy occasion.

He also said he will have proposal for Brexit negotiating mandate on Friday. 

He told a Brussels press conference his message to the UK was:

We already miss you. Thankyou and goodbye.

There is nothing to win in this process and I am talking about  both sides.

In essence, this is about damage control.

Brexit Day: Theresa May says there is 'no turning back' as she formally triggers Article 50 

1:25PM

Pound jumps 0.6pc against the euro

While the move in the pound against the dollar was relatively muted, the pound jumped 0.5pc against the euro to a day's high of €1.1595.

Credit: Bloomberg

Christopher Peel, Chief Investment Officer at Tavistock, said: “Today is a significant day in the history of the United Kingdom marking the beginning of the formal Brexit negotiations. The government will enter the discussions with the EU with a very strong hand and there are many reasons to be optimistic for the future.

"The reaction in the foreign exchange market has been muted and sterling remains in the middle of its six-month trading ranges versus the US dollar at 1.245. Consensus forecasts suggest that sterling will trend lower in the coming months, but this is far from certain. The economy has proven to be remarkably resilient over the last nine months and given the return of inflation, the next move in the Base Rate will likely be in the upward direction. Higher interest rates will make sterling even more attractive than it is today”.

1:16PM

Sentance: We face two years of uncertainty

Andrew Sentance, senior economic adviser at PwC and former Bank of England policymaker, weighs in on the economic impact of triggering Article 50: 

"Triggering Article 50 is not a shock like the EU Referendum result. It has been widely signalled by the government that this would happen in March, so it is no great surprise.

"Most likely, we face another two years of uncertainty before a new relationship between the UK and the EU is properly agreed. During this period we will probably see some bouts of financial volatility affecting the value of the pound and reduced business and financial confidence. Some businesses may hold back investment plans over the next couple of years, due to the uncertainty surrounding the UK's future relationship with Europe. These factors are likely to be a dampener on UK economic growth while the Article 50 negotiations are progressing.

"As a result we expect UK economic growth to slow to 1.6% this year and 1.4% in 2018, the slowest growth experienced since the Euro crisis in 2011/12. The longer term outlook for the UK economy will depend on the success of the negotiations with the other EU countries and our ability to maintain a high degree of open access to EU markets."

Article 50 Letter 1:10PM

Euro hits a day low as sources say ECB wary of making fresh policy-message shift in April

The euro slumped to a session low of $1.0750 against the dollar, down 0.6pc, after sources said the ECB is wary of making fresh policy-message shift in April. 

Meanwhile, it hit a one-month low against the Japanese yen of 119.07. Eurozone bonds also fell broadly on the same report. 

Here's the report from Reuters: 

European Central Bank policymakers are wary of making any new change to their policy message in April after small tweaks this month upset investors and raised the spectre of a surge in borrowing costs for the bloc's indebted periphery.

One ECB source said the bank has been overinterpreted by markets at its March 9 meeting.

Taken aback when markets started to price in an interest rate hike early next year, policymakers are keen to reassure investors that their easy-money policy is far from ending, suggesting reluctance change message before June, six sources in and close to the Governing Council indicated.

While the current level of bond yields remains acceptable, a further increase would be problematic, particularly in places like Italy, Spain and Portugal, where debt payments are a major cost item and rising yields would curb spending and thwart growth.

With the euro zone economy on its best run in almost a decade and conservative policymakers keen to start winding down stimulus, the ECB gave a small nod to improvement with a tweak of its guidance in early March, axing a reference to being ready to act with all available instruments.

But that message did not come across as hoped.

"We wanted to communicate reduced tail risk but the market took it as a step to the exit," one of the sources said. "The message was way overinterpreted."

1:02PM

Reaction to muted pound move after Article 50 is triggered

Here's some of the reaction to sterling's rather muted move after the triggering of Article 50: 

Before the trigger was pulled, most analysts said that while the formal launch of the Brexit divorce process has symbolic significance for investors, the real driver for the pound will be how the negotiations with the EU play out and the health of the British economy going forward.

Bill Street, head of investments for EMEA at State Street Global Advisors, described the trigger as "a non-event and has been largely priced into the market".

"In the short-term we may even see a bounce in sterling as investors close out their short positions. The impossibility of mapping out future negotiations prevents any proper pricing today, but the process over the next two years will undoubtedly spark volatility and larger moves in price levels.” 

12:43PM

Markets react: Pound climbs towards $1.25 

The pound has climbed to a day's high of $1.2478 against the US dollar, up 0.2pc on the day, after Prime Minister Theresa May triggered Article 50. 

It also made gains against the euro, up half a percent to 86.47p per euro. 

This month the local currency has traded within a range of $1.21-$1.26 against the US dollar.

While the pound came under selling pressure in early trade, many analysts think Brexit is already priced in. On June 23, the day of the referendum result, the pound suffered its biggest one-day fall since free-floating exchange rates, plunging by as much as 10.68pc from $1.5048 to $1.3228.

Most analysts believe that while the formal launch of the Brexit divorce process has symbolic significance for investors, the real driver for the pound will be how the negotiations with the EU play out and the health of the British economy going forward.

12:36PM

FTSE 100 hits session low after triggering of Article 50 

The FTSE 100 has hit a session low, down 0.3pc at 7,320.43, after the triggering of Article 50. 

Banking stocks are among the biggest laggards, they've fallen to a session low and are down 0.4pc. 

UKX 12:34PM

Pound unchanged as two-year Brexit negotiations begin

 The pound is currently steady at $1.2455 against the dollar, down 0.2pc. It's trimmed its losses from early trade, when it dropped to a one-week low of $1.2364.

12:32PM

Tusk: After nine months the UK has delivered

European Council President Donald Tusk received a letter from the British ambassador to the EU this afternoon, confirming the UK's intention to leave the European Union.

The notification letter, handed over in Tusk's Brussels office in the presence of journalists, triggers a two-year countdown to Brexit under Article 50 of the EU treaty.

He tweeted: 

12:28PM

BlackRock's Thiel says positive on pound but nervous over Brexit talks

BlackRock's head of global bonds said on Wednesday he remains invested in the British pound but has concerns over whether Brexit negotiations can be completed within their two year deadline.

British Prime Minister Theresa May will file formal Brexit divorce papers on Wednesday, starting a countdown to a divorce with the European Union in 2019.

"My main concern is around the timeline for trying to get these things done as quickly as we can," said Scott Thiel of BlackRock, the world's largest asset management firm.

"We are still positive on sterling but there are still...risks," he said, adding that the possibility of a "hard" Brexit if there is no agreement had increased.

Investors' main fear is that a "hard" Brexit -- one in which Britain would lose preferential access with its largest trading partner -- would hurt the British economy.

The better-than-anticipated performance of the economy following last year's referendum on EU membership has been a reason to be positive on sterling, Thiel said.

Report from Reuters

12:19PM

Pound turns positive ahead of Brexit trigger

As we edge ever closer to the official Brexit trigger, the pound has turned positive. It is currently trading up 0.01pc at $1.2449. 

Meanwhile, the euro has fallen 0.22pc against the pound at 86.62p per euro. 

Ed Anderson, Head of Research at FxPro, points out that sterling has been recovering from its lows earlier in the day in a classic sell the rumour, buy the fact move, as Brexit now becomes a reality and investors look ahead to the negotiations which are not due to get underway in earnest until the EU Brexit Summit on April 29th.

"What will be interesting to see is Donald Tusk’s official response, the tone of which is likely to set the precedent.

"The uncertainties that surround the negotiations are likely to keep Sterling under pressure with the likelihood of it trading within a range of 1.21 to 1.26 for the remainder of 2017. FTSE is somewhat of a different story with US Equities helping to buoy any downward pressure 7250 to 7500 looks to be a likely range for 2017.”

12:06PM

Half-time update: FTSE 100 slip and pound drops towards $1.24 ahead of Brexit trigger

With just less than 30 minutes to go until Article 50 is triggered, let's take a look at the current state of play on financial markets: 

Equities

European shares drifted lower amid the drama of Britain formally triggering its exit from the EU. The Euro Stoxx 600 fell 0.14pc. 

Back in the UK, the FTSE 100 dropped 0.19pc to 7,329.07, while the domestically-focused FTSE 250 dipped 0.1pc. 

UKX

 Currency markets

The pound is down 0.35pc on the day at $1.2437 against the US dollar, having regained some composure after a drop to $1.2364 in early trade. 

Meanwhile, the euro has dipped 0.09pc to 0.8671p per euro. 

Credit: Bloomberg

12:00PM

  Market reactions have changed to Brexit 

Jasper Lawler, of London Capital Group, notes that the market reaction to Brexit news has "morphed over time". 

"It would seem currency traders are going through the grief process. Talk of a hard and soft Brexit was the denial. The October ‘flash crash’ was the anger. The surge after Theresa May’s speech on January 17 looks to have ushered in the final stage of acceptance. The now nullified threat of another Scottish referendum was a wobble that Sterling survived. Article 50 finally getting triggered should help remove some uncertainty in the UK at a time when Trump and Le Pen are piling it on in the US and Europe."

Foreign papers Brexit 11:50AM

Brexit day: What the experts have to say

With the FTSE 100 and pound both in negative territory ahead of the formal start of the Brexit divorce process, here's what the experts had to say: 

ING thinks the more market-relevant event to focus on will be the EU's initial response; Donald Tusk is set to make a short responsive statement today, with a draft copy of the EU's negotiating guidelines released tomorrow.

"This may prove to be the clearest steer yet on whether we're on course for a soft or hard Brexit." 

It thinks the trick for investors will be to wade through the political noise.

"We do not see any fundamental reason for a ‘sell the rumour, buy the fact’ type of reaction from GBP. Instead, the recent hawkish BoE re-pricing and cleaner GBP positioning means that downside risks have increased going into today's events and it won't take much bad news for GBP to jolt lower." 

However, in hte coming days it still sees scope for more bad news to weigh on GBP in the next few days.

"With the two-year clock officially ticking, should officials place greater initial focus on factors like the Divorce Bill – and divert attention away from a transition deal – then we would expect GBP to react negatively. Indeed, we see little evidence of GBP trading with a discernible short-term uncertainty premium and it is not inconceivable that we return back to the bearish price action seen in Oct-16 (after the Tory party conference) – where GBP was trading with a 4-5pc short-term risk premium. This would be consistent with GBP/USD moving back down towards 1.20 – which is where we see the direction of travel."

Neil Wilson, of ETX Capital, thinks it is going to be hard to catch a bid today unless Theresa May strikes an unexpectedly dovish stance.

"Details are everything now. We could be in for a rough ride today as currency traders react to the contents of the letter being delivered to Brussels and the language May uses in parliament.

"And we’re in for a long period of volatility for the pound and UK assets as the government embarks on protracted and hugely challenging Brexit negotiations. Sterling will be incredibly sensitive to negotiations and will offer a clear gauge of how things are panning out. Markets are only a gauge though – they’re not always that great at pricing in the kind of political risk associated with Brexit. In the backdrop is Scotland and the threat of a break-up of the UK.

"The big question now is whether Brexit has been fully factored in. A truly hard Brexit has not been priced into sterling. We could see it move lower still if negotiations take a sour turn - $1.10 is feasible."

FXTM Research Analyst Lukman Otunuga  reckons sterling could be instore for a rocky rollercoaster ride.

"There is already an air of unease over potential complications in the negotiations with the EU’s demand for a £50 billion Brexit bill acting as the first test which may create serious headwinds. Sentiment remains firmly bearish towards the Pound moving forward and the potential resurgence of hard Brexit fears could ensure price weakness becomes a recurrent theme. The fact that Sterling found itself on the back foot on Wednesday morning as Article 50 is about to be officially triggered continues to highlight how the Brexit risk has not been fully priced in with further downside shocks expected. While it is certain that today will go down in history as the day the UK decided to start an irreversible Brexit process that will terminate its 44-year-old membership with the EU, the outcome remains an uncertainty that may leave investors on edge.

"From a technical standpoint, the GBPUSD has found itself gripped by the Brexit woes with sellers exploiting the anxiety to install repeated rounds of selling. The technical breakdown below 1.2400 could encourage a further decline lower towards the next relevant level at 1.2300."

11:26AM

On Brexit day: UK global financial services exports are more than twice the value of vehicle exports

11:03AM

Why Article 50 could trigger more weakness for the FTSE

Kathleen Brooks, of City Index,thinks that the second wave of the Brexit trade could see the FTSE more impacted than sterling, as the detail of how Brexit will impact UK business is made known, and investors start to price in any negative impact from us leaving the EU.

She added: "Interestingly, the FTSE 250 had a positive session on Tuesday, further adding to evidence that today’s dip in sterling was not only about Brexit-related fears, and instead a sign that the market is once again embracing the Trumpflation trade."

The FTSE 100 is currently off 0.05pc at 7,339.99.

UKX 10:58AM

Euro Stoxx 600 turns negative 

The Euro Stoxx 600 has turned negative hours before the Brexit divorce process officially begins. 

It's currently down just 0.03pc at 377.20.

10:35AM

Brexit Day: What about the pound

Chris Beauchamp, of IG, says the impact of the Article 50 activation is "relatively small", apart from some "short-term gyrations in sterling". 

He added: "The day's story will focus on the actual delivery of the note, which will go down in history as one of those key moments when the diplomats take the limelight, however briefly. However the real impact will be in the response from the EU, both in the near-term and over the next few months as the bloc begins to put its negotiating position together in concrete fashion. Stock markets have been a touch jittery, but the message of the week appears to be that dip buying is still very fashionable, even if the rationale behind it is hard to figure. A dearth  of real news, plus ongoing worries about the outlook for new policies in the US, would normally incline investors to be cautious. But in a reflationary global environment, with economic growth picking up, it remains the case that equities are still the place to be." 

10:32AM

LSE terminates merger with Deutsche Boerse following EC decision 

The London Stock Exchange has announced that it has terminated its merger with Deutsche Boerse after EU antitrust regulators vetoed the proposed 29bn-euro. 

LSE

In a statement, the LSE said: 

"As a consequence of the termination of the Merger, the proposed sale of LCH SA by LSEG and LCH Group to Euronext N.V. will also terminate in accordance with its terms.

"LSEG regrets the Commission's decision to prohibit the proposed Merger and looks forward to reviewing the detailed Commission decision in due course."

Shares have jumped 1.9pc to £30.84.

10:29AM

Deutsche Boerse -LSE merger plans rejected by EU regulators

EU antitrust regulators vetoed the proposed 29bn-euro merger of Deutsche Boerse and the London Stock Exchange, derailing the companies' latest attempt to create Europe's biggest stock exchange.

The European Commission said the fifth attempt, three public and two informal, by the companies to merge would have created a de facto monopoly in the markets for clearing fixed income instruments.

The EU antitrust enforcer said the exchanges did not offer sufficient concessions to allay its concerns.

"As the parties failed to offer the remedies required to address our competition concerns, the Commission has decided to prohibit the merger," European Competition Commissioner Margrethe Vestager said in a statement.

The Commission said it could not determine whether LSE's offer to sell the Paris arm of its clearing house to rival Euronext would have created a viable competitor in fixed income clearing.

London Stock Exchange's tumultuous history of bids

However selling LSE' MTS Italian trading platform would have removed its concerns. LSE, however, declined to do so.

The EU rejection comes on the day the British government kicks off the process for exiting the European Union. The deal's failure also comes as U.S. and Asian rivals flex their muscles and expand their market presence.

The planned deal has been plagued by problems since Britain voted to leave the EU last June, among them a demand from German financial regulators that the head office of the merged entity be based in Frankfurt rather than London.

Report from Reuters 

10:26AM

FTSE 100 gives up gains

The FTSE 100 has surrendered almost all of its gains after the pound trimmed its losses ahead of the formal triggering of the Brexit divorce process. 

The blue chip index was relatively flat, up just 2.8 points, or 0.04pc, at 7,346.19, retreating from a strong open. 

However, the more domestically-focused mid-cap index dropped 0.1pc. 

Although last year's EU referendum prompted an initial sharp sell-off in equities, the FTSE 100 quickly recovered, and is currently up 15.9pc from its pre-Brexit levels. Earlier this month, the FTSE 100 hit a record high of 7,447.00.

UKX

The blue chip enjoyed the stellar run as it is comprised of predominantly international, dollar-earning companies, who have received an accounting-related boost from the persistent pound weakness. The pound remains 16pc off its pre-Brexit levels. 

Meanwhile, the FTSE Local UK index,  which includes companies that generate more than 70pc of their revenues domestically, remains 0.96pc off its pre-Brexit levels. 

The FTSE Local UK index remains 0.96pc off its pre-Brexit levels Credit: Bloomberg

10:00AM

Pound trims losses in choppy trade as investors brace for Brexit trigger

The pound has trimmed its earlier losses after the release of UK consumer credit data in choppy trade as investors remain cautious hours before Prime Minister Theresa May triggers Article 50. 

The local currency, which has traded in a range of $1.21-$1.26 this month, fell to an intraday low of $1.2364 before climbing to $1.2446, down just 0.28pc on the day. 

Against the euro, the pound hit a day high of 86.57p per euro, up 0.3pc on the day. 

Pound trims losses against US dollar Credit: Bloomberg

9:46AM

UK consumer credit slows less than expected

Away from the impact of Brexit on the pound, data from the Bank of England released this morning has shown that British consumer borrowing slowed by less than forecast in February. 

Consumer credit in February rose by £1.441bn, compared with a forecast increase of £1.3bn and down from an increase of £1.609bn in January.

Meanwhile, figures from the BoE showed that the number of mortgages for house purchase approved by lenders fell to 68,315 in February from 69,114, below the median forecast of 69,900.

9:40AM

Brewin Dolphin: Pound is undervalued - Brexit risks are skewed to the upside

With the formal Brexit start casting a shadow over the pound's performance this morning, Guy Foster, Head of Research at Brewin Dolphin, reckons the pound is currently undervalued. 

He thinks fear of a hard Brexit may be realised and talks between the European Union and the United Kingdom could "collapse in acrimony" after Article 50 is invoked by the UK today.

He added: "Disagreement over the mooted Brexit bill, which the likes of the foreign secretary Boris Johnson have said Britain should not pay is just one area of stress but the British government has to strike this harsh tone as part of its negotiation strategy."

Article 50 gallery puff

And while political risk may grab headlines , Mr Foster points out that currencies are actually driven by "more mundane factors".

He explains: "For example, the United Kingdom is an economy which is demonstrably closer to full employment than even the United States, implying its exceptionally loose monetary policy could be tightened. Concerns over the current account deficit have failed to drive currency returns over the last 30 years, and now is probably no different. The risks still seem to be skewed to the upside for sterling."

At a glance | What is Article 50?

Mr Foster believes the degree of negativity surrounding the UK pound has been "excessive".

"Better economic performance, or a more constructive resolution of the negotiations, would enable it to recover. This would be good for UK equities relative to their overseas peers, for retailers and for real estate. It would enable smaller businesses, which tend to be domestically focused, to outperform larger companies who have benefitted from the fall in the pound inflating their overseas sales.”

What should investors be aware of?

For investors, Mr Foster says they shouldn't be too alarmed as developed economies like the UK are unlikely to suffer from a rapid collapse in confidence; the UK is underpinned by robust institutions which give investors’ confidence.

"It might look set to be a rough ride at times, but investors don’t need to jump ship.”

9:29AM

 Sir Tim Barrow set off with the letter

Head over to our live politics blog where our political correspondent Laura Hughes has the latest on Article 50: 

Sir Tim, the UK's Ambassador to the EU, arrived at the European Council clutching a briefcase containing the Article 50 letter as cameras captured the historic moment.

He said "Morning" to reporters as he walked into the Europa Building in the heart of the European quarter, where he is expected to hand the document to Mr Tusk this afternoon.

 Follow our live politics blog for more:  Article 50: Philip Hammond says 'we will get a deal' as Theresa May calls on nation to unite as she signs Brexit letter

9:25AM

German DAX hits two-year high

The German DAX has hit a two-year high today, leaving it just 150 points short of a life-time high, ahead of the triggering of Article 50. 

It is currently up 0.56pc at 12,217.35.

9:23AM

Article 50's impact on sterling

Jeremy Cook, of World First, odes not expect today to be too much different from a normal trading day. 

Will the pound fall today?

"I don’t think so. We’ve known that Article 50 will be triggered by the end of Q1 for months now and the fact that it is happening this Wednesday should not come as a surprise to anyone. The triggering of Article 50 is almost certainly ‘priced in’ to sterling at the moment and, as we have said multiple times in the past, we think that the performance of the pound from here will depend on the UK’s team in Brussels gaining ‘quick wins’ as opposed to being dragged into a mire from where progress looks to be less than forthcoming." 

He highlights that news the Scottish parliament had voted to hold another referendum on independence did not move markets at all. 

Mr Cooks adds: "Sterling is most definitely primed for a rebound higher. The asymmetry of market expectations means that a couple of weeks of good data and some positive noises on big ticket items such as regulation of the financial services sector, could really set a fire under the pound. The major issue with this is that the negotiation process is unlikely to begin until June as Europe waits on the news from the French Presidential elections."

9:03AM

Hammond: No one wants lines of trucks at borders after Brexit

Chancellor Philip Hammond said this morning he was confident Britain would negotiate a customs arrangement with the European Union that would allow for borders to be as frictionless as possible after Brexit.

Hammond was speaking hours before Prime Minister Theresa May officially starts the process of Britain leaving the European Union by triggering Article 50 of the bloc's Lisbon Treaty. 

"Everybody in the EU and the UK is going to go into this negotiation looking to protect their own interests," Hammond said in an interview on BBC radio, answering a question about customs arrangements after Brexit.

"It is not in the interests of anybody on the continent of Europe to have lines of trucks. It is not in the interests of the millions of EU workers who spend their days producing goods to be sold in the UK.

"It is not in the interests of French farmers who produce fresh produce coming into the UK every day that there are lines of trucks. So I am very confident that we will not get an outcome that is a worst case outcome for everybody. That would be ridiculous."

Hammond said Britain accepted that after Brexit it could no longer be a member of the European single market or a full member of the customs union, and that would have consequences.

"We understand that we can't cherry pick. We can't have our cake and eat it," he said.

However, he said a customs arrangement could be negotiated that would make borders as frictionless as possible. He said this was "vitally important" for Northern Ireland, where the border with the Irish Republic will be the United Kingdom's only land border with the EU.

"Nobody on either side of this discussion wants to see us having to return to the hard border of the old days," he said, referring to past years of violent conflict in Northern Ireland when border posts were among many flashpoints.

Hammond was repeatedly pressed on what would happen if the two years of talks between Britain and the EU foreseen by Article 50 went by and no deal was reached, but he refused to be drawn.

"I am absolutely confident that we will negotiate a deal with the European Union," he said.

He added that the British government had plans in place for day one after leaving the EU that took into account "a huge variety" of possible outcomes of the negotiations.

Hammond also signalled tough negotiations ahead on the issue of payments Britain would have to make to the EU during or even after Brexit, saying that he simply did not recognise "some of the very large numbers that have been bandied about in Brussels".

"I am not surprised that they have been bandied about – this is after all a negotiation – and it is not surprising to me that our negotiating partners are setting out a very aggressive starting line for the discussion."

Report from Reuters

8:56AM

The UK could have no flights to and from Europe after Brexit, Ryanair warns

On Brexit Day, Ryanair has warned that the UK could have no flights to and from Europe after it leaves the EU. Sam Dean has the details: 

The UK could be left without any flights to and from Europe after Brexit, Ryanair has warned.

The low-cost airline said aviation should be treated as a matter of urgency in Brexit negotiations, as summer schedules for 2019 must be finalised by March next year.

Without a bilateral agreement being struck with the EU, Britain will have to revert to historic WTO regulations that do not cover aviation, Ryanair said.

The airline added that there was a “distinct possibility of no flights between Europe and the UK” for a period from March 2019.

Airlines plan their flights a year in advance, so will finalise their schedules for the summer of 2019 in the spring of 2018.

“Some nine months on from the Brexit referendum, we are no closer to knowing what effect it will have on aviation,” said Ryanair’s chief marketing officer Kenny Jacobs.

Read the full story here

8:53AM

Pound suffers on Brexit Day, down 0.6pc

Currency traders seemed perturbed by the reality of Brexit this morning, ahead of Theresa May official triggering of Article 50 today. 

The pound tumbled by as much as 0.94pc in early trade to $1.2364 against the US dollar. 

Credit: Bloomberg

Most analysts said the actual triggering of Article 50 will only have symbolic significance for investors, with the real driver for sterling being how negotations with the EU will play out, and the health of the British economy going forward. Nevertheless, there are certainly some jitters feeding through in early trade. 

 Ipek Ozkardeskaya, of London Capital Group, said: "Sentiment in the pound is heavy, as investors wonder whether the UK will display a divorce-only approach, or include clauses for the future of the EU-UK relations." 

8:47AM

FTSE 100 rises but mid-cap index gives up gains as Brexit divorce process begins

The FTSE 100 has climbed this morning, on the back of the pound weakness, as Britain was set to formally trigger divorce proceedings with the European Union it joined in 1973.

However, the domestically focused mid-cap index has turned flat, reversing earlier gains, as Brexit jitters set in. 

Elsewhere, European bourses have also made gains. Here's a snapshot of the current state of play in Europe: 

Credit: Reuters

 Mike van Dulken, of Accendo Markets, said: "Calls for a positive open come courtesy of a weaker GBP as the UK prepares to officially trigger Article 50 to leave the EU, providing a helpful translational boost to the army of blue-chips with international exposure. Another up-leg in Oil prices (despite another US inventory build) is also helping buoy the key commodity space along with a surge north by economic barometer Copper." 

8:41AM

China stocks down for third day, smaller-caps drag 

 China stocks slid on Wednesday, posting losses for the third day in a row amid concerns over liquidity and tighter polices as the money market saw a net drain for a fourth consecutive day after the central bank skipped open market operations.

The blue-chip CSI300 index fell 0.1pc, to 3,465.19 points, while the Shanghai Composite Index  lost 0.4pc to 3,241.31 points.

Eight port operators, including Rizhao Port and Dalian Port surged by their 10 percent trade limit, after the Baltic Exchange's main sea freight index - a closely watched barometer of global trade - climbed to the highest in over two years. 

"The Baltic index, as well as recent U.S. economic data, all point to improving global trade conditions," said Wu Kan, Shanghai-based head of equity trading at investment firm Shanshan Finance.

Wu said the surge in port operators was an extension of the recent fervour for stocks related to "One Belt, One Road" initiative. The plan is a signature foreign and economic policy of Chinese President Xi Jinping, envisioning massive infrastructure spending to link China to the rest of Asia and Europe.

Report from Reuters

8:36AM

Agenda: UK prepares to trigger Article 50

Good morning and welcome to our live markets coverage. 

Today attention turns to the pound as Prime Minister Theresa May prepares to file formal Brexit divorce papers, nine months after the EU referendum. 

She will notify EU Council President Donald Tusk in a letter that the UK really is quitting the bloc it joined in 1973.

There are a plethora of unanswered questions, including whether exporters will keep tariff-free access to the single market and whether British-based banks will still be able to serve continental clients, not to mention immigration and the future rights of EU citizens in the UK and Britons living in Europe.

Already global banks such as Goldman Sachs has said they are considering moving staff out of London due to Brexit. Meanwhile, this morning Ryanair warned that the UK could be left without any flights to and from Europe after Brexit

While the pound is already under pressure, many analysts think Brexit is already priced in. On June 23, the day of the referendum result, the pound suffered its biggest one-day fall since free-floating exchange rates. 

Also on the agenda: 

Full-year results: Johnston Press, Jackpotjoy, Saga, Cambridge Cognition Holdings, Alliance Pharma, Centaur Media, Faron Pharmaceuticals, Gresham House

Interim results: James Halstead, Allergy Therapeutics, Transense Technologies, Game Digital

Trading update: Stagecoach Group

AGM: Angus Energy

Economics: Mortgage approvals (UK), net lending to individuals m/m (UK), M4 money supply m/m (UK), pending home sales (US)

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