Carmakers race higher, Johnson jitters for sterling
LONDON (Reuters) – A speeding autos sector and hopes for even lower borrowing costs buoyed world stocks on Tuesday, while a brief sterling rally proved short-lived as hard-Brexit advocate Boris Johnson was confirmed as Britain’s new prime minister.
Corporate results from oil bellwether Halliburton, Swiss bank UBS and Apple supplier AMS had all helped Europe’s morning mood though it was a 4% surge from the auto sector that provided the real torque.
German parts-makers Hella and French peer Faurecia surged as much as 6% and tire maker Continental leapt 5.8% despite another profit warning, putting the sector on track for its best day since Jan.
The region-wide STOXX 600 benchmark added over 1% while Wall Street’s main markets were expected to open 0.3%0.4% higher later after a flurry of largely upbeat earnings from the likes of Coca-Cola and United Technologies.
“The results are coming in and have helped the market today and we are still under the influence of interest rates,” said Francois Savary, chief investment officer of Prime Partners, referring to expectations of US and ECB rate cuts. He also said Wall Street earnings had provided no scares so far and this week’s results from Facebook, Amazon.com and Google parent Alphabet would “drive the market up the road.”
Ahead of the US open, the International Monetary Fund lowered its forecast for global growth this year and next, warning that more US-China tariffs, auto tariffs or a disorderly Brexit could further slow the world economy. Among currencies, the dollar reached a two-week high after US President Donald Trump and congressional leaders agreed on Monday to a two-year extension of the US debt limit, ending the threat a government default later this year.
The New Zealand dollar led G10 losses after its central bank said it had “begun scoping a project to refresh our unconventional monetary policy strategy and implementation,” although it added it was at a very early stage.
Britain’s pound was the other notable mover as it slid back towards the mid $1.24 region having briefly rallied after eurosceptic Boris Johnson was elected as the replacement for outgoing UK Prime Minister Theresa May.
Concern that Britain will crash out of the European Union without a withdrawal agreement have grown since Johnson said he would pull Britain out on October 31 “do or die.”
The pound traded 0.2% weaker at $1.2445, near last week’s 27-month low of $1.2382, having made it as high as $1.2481.
Credit ratings agency Moody’s and investment Goldman Sachs both warned the risk of a no-deal Brexit was now higher.
“With Boris Johnson at the helm, the tail risks are likely to intensify – well into October,” Goldman said.
“We raise our odds on a ‘no deal Brexit from 15% to 20%, and we reduce our odds on ‘no Brexit’ at all from 40% to 35%.”
The euro fell too to $1.1189, although rather than Brexit it was weighed down more by the likelihood of even more negative ECB interest rates in the coming months. The central bank meets on Thursday.
“It is going to take a bold stroke by the ECB to both satisfy markets clamoring for incremental easing and make a difference to the economy, all the while remaining inside its institutional setting and not destabilizing the financial system,” wrote Carl Weinberg, chief international economist at High Frequency Economics.
EUROPE’S GOVERNMENT bonds barely budged, with investors largely happy to sit on their hands having seen their yields slumping since the start of the year.
US yields did tick fractionally higher in response to the debt ceiling deal but Germany’s 10-year bond yield, the benchmark for the euro zone, was down a basis point, at minus 0.35% and not far from the record low -0.40% posted at the start of the month.
In commodities, Brent crude edged lower to reach $63 per barrel, having shot up 1.2% the day before on concern over possible supply disruptions after Iran seized a British tanker last week.
US West Texas Intermediate crude slipped 23¢ to $55.99. “The response of oil prices to the seizure of a British oil tanker by armed Iranian forces near the Strait of Hormuz has been amazingly muted so far,” said Carsten Fritsch, analyst at Commerzbank. “It appears that the majority of market participants are convinced that there will be no open conflict between the West and Iran.”