September 24, 2019 / 12:33 PM / 2 months ago

GLOBAL MARKETS-Trade optimism bolsters shares, pound whipsawed by Brexit drama

(Updates market moves)

* Europe, S&P500 futures gain after Mnuchin confirms trade talks

* Euro zone data weigh on euro, deepen anxiety about economy

* Sterling rises after parliament suspension ruled unlawful

* World FX rates in 2019 tmsnrt.rs/2egbfVh

* Asian stock markets: tmsnrt.rs/2zpUAr4

By Marc Jones

LONDON, Sept 24 (Reuters) - Rekindled U.S.-China trade hopes supported share markets on Tuesday, while Britain’s pound was whipsawed by another twist in the Brexit drama as the UK’s top court dramatically overruled the government’s suspension of parliament.

There was more glum data from Germany to contend with too, but Monday’s confirmation that U.S. Treasury Secretary Steven Mnuchin’s and Trade Representative Robert Lighthizer would meet Chinese Vice Premier Liu He in two weeks’ time bolstered spirits.

The pan-European STOXX 600 index and Wall Street futures were both up as much as 0.3% and Germany’s bond yields also steadied after Monday’s dour PMI data had triggered their biggest fall since June.

“A perceived lull in U.S.-China trade tensions has eased market fears about an economic downturn,” a group of BlackRock’s investment strategists wrote in a note.

Currency market moves were mostly small-scale, with one notable exception - the pound.

Traders had waited for a Supreme Court ruling on UK Prime Minister’s Boris Johnson five-week suspension of parliament — a move known as prorogation in Westminster speak — and when it came it was unanimous and blunt. The move was “unlawful”.

Sterling initially climbed as high $1.2487 on the view it would help prevent the UK being bundled towards a ‘no-deal’ Brexit at the end of October. It then lost traction though and spent the next few hours bobbing between $1.2480 and $1.2460.

“I wasn’t surprised to see it hop higher but I also wasn’t surprised to see cable (pound vs the dollar) run out of steam ahead of $1.25,” said TD Securities’ European head of currency strategy Ned Rumpeltin.

Johnson is now likely to head to his Conservative party’s annual conference at the weekend and rally his troops in preparation for a likely national election which will be a bitter fight over Brexit.

“He is going to have to rally his base and he is going to do that around hard Brexit,” Rumpeltin said. “That will be a moment of clarity for the FX market... It will look at the polling and the Conservatives are leading in the polls.”

GOOD TO TALK

While trade talks remained the primary focus, U.S. investors were also waiting on closely-followed consumer confidence data due at 10:00 a.m. ET (1400 GMT) which is expected to remain robust.

Monday has seen a mixed batch of U.S. economic surveys but still S&P 500 had remained within striking distance of its July all-time high.

Overnight, MSCI’s broadest regional Asia share index inched up 0.1%, led by 0.6% gains in mainland Chinese shares after the vice head of China’s state planner said Beijing will step up efforts to stabilise growth.

Japan’s Nikkei ended up 0.2% after a market holiday on Monday and as the yen traded at 107.62 yen per dollar, after reaching two-week highs of 107.32 the previous day.

“The comments (from Mnuchin on China trade talks) gave a little bit of boost to sentiment, but markets are still not that optimistic, either,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“It seems there have been a lot going on behind the scenes,” he said, referring to U.S. President Donald Trump’s questioning a decision by his top trade negotiators to ask Chinese officials to delay a planned trip to U.S. farming regions.

That cancellation was seen by markets as a sign all is not well in the U.S.-China talks and had helped send share prices lower on Friday.

Among the main commodities, gold held its ground and oil prices dipped on expectations that the slowing global economy will keep demand subdued.

Brent crude futures fell 40 cents to $64.37 a barrel by 0624 GMT. West Texas Intermediate futures were down 33 cents to $58.31.

“The demand side of the equation is back in focus,” said Michael McCarthy, senior market analyst at CMC Markets in Sydney, pointing to sluggish manufacturing numbers in leading economies in Europe as well as Japan.

Additional reporting by Florence Tan in Singapore and Hideyuki Sano in Tokyo; editing by Larry King, Ed Osmond, William Maclean

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