September 11, 2018 / 12:31 AM / 2 months ago

Brexit cheer provides relief as world stocks hit by trade strain

LONDON (Reuters) - Hopes of a UK-EU deal over Brexit kept the British pound near five-week highs on Tuesday, helping lighten the mood in Europe even though the ongoing trade dispute between Washington and Beijing kept world stocks trading just off three-week lows.

FILE PHOTO: Men walk past an electronic board showing market indices outside a brokerage in Tokyo, Japan, March 2, 2016. REUTERS/Thomas Peter/File Photo

Italy was the other bright spot in Europe, as receding concerns over public finances helped bonds extend their rally while a slight dollar retreat helped emerging market currencies claw back some recent losses.

MSCI’s index of global equities .MIWD00000PUS was flat on the day, though Asian bourses were in the red for the ninth straight day .MIAPJ0000PUS as markets awaited action from U.S. President Donald Trump after the expiry of a deadline for public comment on additional tariffs on Chinese goods.

European shares, having opened broadly higher, were down on the day, with a pan-European index of shares lower 0.3 percent.

The pound traded near five-week highs against the dollar, hitting a high of $1.3087, after the European Union's chief negotiator Michel Barnier said on Monday a Brexit deal was possible within weeks. Sterling GBP=D3 had risen 0.8 percent on Monday.

For the second time in less than a week Barnier has signalled his desire to push ahead on the Brexit negotiations, less than seven months before the United Kingdom is slated to leave the European Union on March 29, 2019.

“The Barnier headlines mean there’s a lower hurdle for getting a seperation deal done by the end of the year, when the discussion about the future relationship can begin,” said CMC Markets analyst Michael Hewson.

“Also, the fact that Trump still hasn’t announced the tariffs yet as expected has prompted a bit of cautious optimism, but it’s not a problem that’s going to go away,” he added.

The pound has been under pressure on anxiety that Britain would exit from the EU without any formal trading arrangement.

Meanwhile Italian bond yields - which move inversely to price - fell for the seventh straight day on Tuesday, making it the best run in over a year for the benchmark 10-year bond, as Italian politicians signalled that an upcoming budget would likely fall within European Union rules. IT10YT=RR

The closely-watched Italy/Germany 10-year bond yield spread - seen as an indicator of euro zone sentiment - was at 229 basis points, as much as 60 bps tighter than last week’s peaks. DE10IT10=RR

FILE PHOTO: Pro and anti Brexit protesters demonstrate on opposite sides of the road outside the Houses of Parliament in London, Britain, September 5, 2018. REUTERS/Hannah McKay

The single currency EUR=EBS also benefited from this move, rising 0.3 percent to $1.1628 and as much as 2.9 percent above the August lows.


Earlier in the session, Asian shares struggled to avoid a ninth straight session of losses as the spectre of a further escalation in the Sino-U.S. trade war haunted investors.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.05 percent, but held above lows last visited in July last year.

Shanghai blue chips .CSI300 dipped 0.2 percent while South Korea .KS11 fell 0.2 percent.

Having warned last week that he was ready to levy additional taxes on practically all Chinese imports, U.S. President Donald Trump was uncharacteristically quiet on trade on Monday.

China will ask the World Trade Organization next week for permission to impose sanctions on the United States, for Washington’s non-compliance with a ruling in a dispute over U.S. dumping duties that China initiated in 2013, a meeting agenda showed on Tuesday.

Emerging market currencies remained under pressure with a broad index .MIEM00000CUS down near 16-month lows and the Indian rupee INR= near a record trough of 72.455 per dollar.

“Weakness is set to remain a recurring theme amid global trade tensions, a broadly stronger dollar and prospects of higher U.S. interest rates,” said Lukman Otunuga, a research analyst at broker FXTM.

“With turmoil in Turkey and Argentina triggering contagion fears, appetite for emerging market assets and currencies is likely to continue diminishing.”

In commodity markets, gold was stuck at $1,195.80 an ounce XAU= and continues to move in the opposite direction to the dollar.

Oil prices found support from looming U.S. sanctions against Iran’s petroleum industry. [O/R]

For Reuters Live Markets blog on European and UK stock markets open a news window on Reuters Eikon by pressing F9 and type in ‘Live Markets’ in the search bar

Editing by Andrew Heavens

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