What to watch: No-deal Brexit spooks markets, Rolls-Royce turnaround on track, and Virgin/O2 deal probed

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

Rolls-Royce turnaround on track

Rolls-Royce (RR.L) has reassured investors that its transformation plan remains on track.

The manufacturer said on Friday it had managed to find cash mitigation worth £1bn ($1.3bn) in 2020 and was on track to deliver lasting savings of £1.3bn by 2022.

Rolls-Royce said its aerospace business was slowly recovering while its defence division remained resilient and power systems were showing early signs of recovery.

“We have taken decisive actions to protect and reposition our business in difficult and uncertain trading conditions, including the impact from a second wave of COVID-19,” chief executive Warren East said. “The outlook remains challenging and the pace and timing of the recovery is uncertain.

“However, our actions have given us a strong foundation to deliver better returns as our end markets improve and we continue to drive our ambition of delivering more sustainable power to support the creation of a net zero carbon economy."

Shares dropped 6.5%.

No-deal Brexit spooks markets

Rolls-Royce’s slump came amid a wider sell-off of UK assets.

UK prime minister Boris Johnson warned on Thursday night that there was now a “strong possibility” of a no-deal Brexit.

The outlook sparked a sell-off for UK stocks and the pound. The FTSE 100 (^FTSE) fell 0.7%, while the pound was down around half a percent against both the euro (GBPEUR=X) and dollar (GBPUSD=X).

On the continent, the DAX (^GDAXI) fell 1% and CAC 40 (^FCHI) was down 0.9%.

WATCH: Boris Johnson warns to brace for a no-deal Brexit

“European markets have opened in the red as investors dial down their risk as Brexit negotiations near a critical point ahead of Sunday’s deadline,” said Adam Vettese, a market analyst at Etoro.

“In addition to this, an agreement on a US fiscal stimulus package still looks some way off. Despite some vaccine optimism, US index futures are trading down 0.5%.”

Virgin/O2 deal probed

The Competition and Markets Authority (CMA) has escalated its investigation into the £31bn merger between Virgin Mobile and O2.

The CMA on Friday said it had opened a Phase 2 investigation into the deal. The watchdog said it was “concerned that, following the merger, Virgin and O2 may have an incentive to raise prices or reduce the quality of these wholesale services, ultimately leading to a worse deal for UK consumers.”

The investigation has been fast-tracked at the companies’ request.

Bank of England reassures on UK financial system

Banks remain strong enough to weather the COVID-19 crisis and have done all they can to prepare for Brexit, the Bank of England said on Friday.

The central bank published its bi-annual financial stability report on Friday, detailing what it sees as the biggest threats facing the UK financial system and what it is doing to combat them.

The Bank of England said banks were “strong enough to support households and businesses” through the COVID crisis, with buffers enough to absorb up to £200bn in losses.

The central bank said banks had also “made extensive preparations” and “most risks to UK financial stability have been mitigated”.

French Connection’s sales boost

French Connection (FCCN.L) shares rallied on Friday after the retailer said sales were ahead of expectations.

The fashion brand said that, while recent trading had been hit by lockdowns, sales since reopening stores had been “encouraging” and wholesale orders for next Spring’s clothing were “currently ahead of our expectations.”

Additionally, French Connection said its US business had secured a loan of $6.5m to support operations.

Management said the business was “well positioned to capitalise on any opportunities that arise” despite ongoing “considerable challenges.”

Shares gained over 4%.