January 31, 2019 / 9:01 AM / 18 days ago

Daily Briefing: UK auto sector feels cold from Brexit fears

LONDON (Reuters) - Anyone in any doubt about the impact of all the Brexit uncertainty need only look at this morning's UK car data, which showed output down 9 percent last year - the biggest drop since the 2008-9 recession - and investment slashed by nearly half.

European Commission President Jean-Claude Juncker speaks during a plenary session of the EU Parliament in Brussels, January 30, 2019

While several factors are to blame, the SMMT trade body cited the “enormous damage” done by Brexit uncertainty and warned of “permanent devastation” in the event of a no-deal severing of existing trade arrangements. That comes from a sector that employs some 850,000 people and is lauded as a rare UK manufacturing success story.

The EU response to Tuesday night's vote in the UK parliament has been unequivocal: this brings no-deal a step closer because there is no way of re-negotiating the existing withdrawal. Meanwhile, watch for indications of a new cross-party push to avert a no-deal outcome.

Conservative ministers knew they did not have to put their jobs on the line for that this week because May said there would be a new vote in a couple of weeks’ time: now Feb. 14 is their window either to join forces with like-minded Labour lawmakers or forge their own initiative.

MARKETS AT 0755 GMT

Call and response: markets shrieked and the Fed came to the rescue. Whether the underlying economy really needed a Fed rethink remains to be seen, but Chairman Powell and team are clearly leaving nothing to chance.

The White House, for one, will be pleased. Wall Street and global stock and bond markets have rallied with gusto since the Fed indicated last night it would pause its interest rate rises while assessing the weakening of the economy.

Crucially, it also said that the rundown of its balance sheet - or the stockpile of bonds it has accumulated over the past 10 years of quantitative easing - could slow, too. That ticked all the boxes for financial markets, and major banks, such as Goldman Sachs, revised down their expected rate hike trajectory for this year.

Major Wall Street benchmarks gained more than 1 percent, Treasury yields fell to their lowest in a couple of weeks and the dollar index retreated to its lowest since Jan. 10. Euro/dollar topped $1.15 for the first time since Jan. 11.

MSCI’s emerging-market currency index rose to its highest since June and is now up 2.4 percent for the year to date. MSCI’s global equity index hit its highest since early December and is up more than 7 percent for 2019 so far.

Tokyo’s Nikkei gained more than 1 percent and Shanghai and Hong Kong stocks were also higher. European stocks jumped at the open, but by a more modest amount.

Now the attention shifts back to Washington later today to see if there’s any positive developments in the second day of trade talks between U.S. and Chinese officials. Earnings from Apple and Boeing also supported the market, although Microsoft shares fell after the bell after its latest update. Another note of caution was the second month of contraction signalled by China’s business surveys for January.

In European stocks, there are also plenty of corporate results to digest. Nokia will be in focus after the telecom network equipment maker posted stronger-than-expected quarterly results, but traders called the stock to fall 2 to 7 percent at the open, saying its guidance disappointed.

BT Group was seen rising 3 to 5 percent after it reiterated its outlook, while Unilever was expected to fall around 2 percent after it reported lower-than-expected fourth-quarter sales, hurt by flat volume growth in developed markets.

Swatch posted lower-than-expected results, hit by a downturn in Asia and weak sales in France, sending its shares down 4 to 5 percent in premarket. Shell is seen rising after fourth-quarter profit beat expectations.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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