October 16, 2019 / 7:45 AM / a month ago

Daily Briefing: Jumping the gun on a Brexit deal?

LONDON (Reuters) - World markets jumped the gun on a possible Brexit deal on Tuesday. No text of an agreement had been released early on Wednesday, athough a tentative deadline of midnight had passed.

A man walks past an UK government Brexit information campaign poster at a bus stop in central London, October 15, 2019. REUTERS/Toby Melville

A UK spokesman said the talks would resume in Brussels on Wednesday morning after "constructive" negotiations went late into the night.

The pound, which has climbed almost 5% since the first signs of a breakthrough late last week, surged again on Tuesday to a five-month high of $1.28 after reports a draft deal was close. It retained the bulk of that move early on Wednesday, slipping back to about $1.2750.

The largely domestically focused UK midcap stocks of the FTSE250 index also jumped to their highest level in a year.

For the pound at least, the rally is less a bet on deal or no deal than the assumption there will now be either a deal to aid an orderly Brexit or another extension of the Oct. 31 deadline.

U.S.-China trade war rhetoric appeared to turn sour again only days after a partial truce between the world’s two biggest economies, but the Brexit optimism was enough to buoy global stock markets on Wednesday – aided by some better-than-expected U.S. bank earnings for the third quarter.

JP Morgan, Citigroup and Wells Fargo beat forecasts at the start of an earnings season that’s expected to see an annual drop in S&P 500 profits of about 3%.

Upbeat earnings from European chipmaker ASML and drugmaker Roche on Wednesday also helped the mood. MSCI’s all-country world stock index rose 0.9% to its highest in about three weeks on Tuesday and nudged higher again today.

Wall Street stocks added 1% overnight, with S&P 500 futures down first thing, with earnings from Bank of America, Bank of New York Mellon, Netflix and IBM due later. Eurostocks futures were flat after Tuesday’s surge as Brexit developments were awaited.

Tokyo’s Nikkei outperformed in Asia, with Hong Kong and Seoul benchmarks up, too. Shanghai was the laggard with losses of 0.5%. Bloomberg reported, citing sources, that China would struggle to buy $50 billion of U.S. farm goods annually unless it removed retaliatory tariffs on American products.

Beijing also said it opposed new measures passed by the U.S. House of Representatives related to the Hong Kong protests and urged lawmakers to stop interfering.

The International Monetary Fund on Tuesday cut its forecast for world growth in 2019 for the fifth time and now sees growth at a 10-year low of 3%.  

Turkey’s lira was flat and Turkish stock futures 1.4% after President Tayyip Erdogan refused U.S. demands to declare a ceasefire in northeastern Syria. Further ratcheting up the pressure on Ankara, U.S. prosecutors on Tuesday charged Turkey's majority state-owned Halkbank with taking part in a multibillion-dollar scheme to evade U.S. sanctions against Iran.

U.S. Vice President Mike Pence will meet with Erdogan in Ankara on Thursday, with the prospect of further sanctions looming.

South Africa’s rand is down 1% against the dollar after state power firm Eskom said it would cut up to 2,000 megawatts of power from the national grid on Wednesday because of a shortage of generating capacity.

— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —

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