Pound tumbles as election sows uncertainty
The pound wallowed near twomonth lows yesterday, unable to sustain a strong recovery from last week’s shock election that saw Britain’s ruling Conservatives lose their majority, throwing the country into uncertainty, days before key Brexit talks. While Prime Minister Theresa May looked to counter anger within her party by apologising and telling MPs “I got us into this mess, and I’m going to get us out”, there are doubts about her future in Downing Street.
May had called the vote in a bid to strengthen her majority, and her bargaining power, before going into the EU exit talks set for June 19. Now she must rely on the support of Northern Ireland’s Democratic Unionist Party. Greg McKenna, chief market strategist at AxiTrader, said: “The political uncertainty is unhelpful given Brexit talks are about to begin in the next week.”
He added that “sterling came under renewed pressure as a result” of the newly formed government’s refusal to soften its approach to the discussions. “Why the government wouldn’t use the election for a reset I just don’t know.” In Asian trade the pound bought $1.2690, up from New York trade but well off levels around $1.29 seen before the election. The currency’s “near-term direction will continue to be driven by the post-election fallout, but the prospects look increasingly gloomy as the possibility of another Tory leadership vacuum enters the picture at precisely the wrong time for the UK,” said Stephen Innes, senior trader at OANDA.
Fed, Sessions in view
On equity markets, technology firms failed to bounce back from the previous day’s selloff that was sparked by a rout in the sector on Wall Street Friday while Samsung was flat in Seoul. The losses came after the Nasdaq suffered another slump as Apple and Amazon took a beating, with analysts wondering whether the selling is down to profit-taking or the start of a broad retreat after all US indices hit records last week.
Broader markets fared slightly better after Monday’s steep losses. Tokyo finished marginally lower but Shanghai closed up 0.4 percent and Hong Kong gained 0.3 percent in the afternoon. Sydney gained 1.7 percent and Seoul jumped 0.7 percent, while Wellington and Taipei were also up. Traders are now awaiting the end of the Federal Reserve’s latest policy meeting. While another interest rate hike is widely expected, the bank’s post-meeting statement will be scanned for some forward guidance and clues about future movements.
Also, US Attorney General Jeff Sessions is due to testify yesterday to the Senate Intelligence Committee as it probes Russian meddling in last year’s election and Moscow’s links to underfire President Donald Trump. Attention has focused on Sessions as reports swirl that he may have had more meetings with Russian officials during the campaign last year than the two he has informed authorities of. In early European trade London, Frankfurt and Paris each rose 0.3 percent.
Wall Street tech sell-off
Elsewhere, Japan’s benchmark Nikkei index slipped yesterday in response to Wall Street’s technology sell-off, with market heavyweight SoftBank falling for a second day. US technology giants including Apple and Netflix Monday suffered another bruising session in New York which analysts attributed to profittaking. “The upward trend in earnings for US technology companies isn’t likely to change, but with those stocks in for a speedy correction, it’s hard to buy their Japanese peers,” said Shoichi Arisawa, an equity analyst with Iwai Cosmo Securities. “But the downside will remain supported as well, with stocks of companies with a domestic business focus that have solid earnings like retailers and builders continually on the rise,” he told Bloomberg News.
Investors were also cautious ahead of the start of a US Federal Reserve meeting later yesterday. The Nikkei 225 index edged down 0.05 percent, or 9.83 points, to close at 19,898.75. But the broader Topix index of all first-section issues rose 0.12 percent, or 1.96 points, to 1,593.51. SoftBank lost 1.62 percent to 9,078 yen following a report it has reached an agreement to merge its Indian e-commerce unit Snapdeal with rival Flipkart, with Softbank to own 20 percent of the merged firm.
Japan Display, which supplies screens for Apple’s iPhone, dropped 2.39 percent to 204 yen while electronics giant Kyocera slipped 0.78 percent to 6,344 yen. Automakers lost ground, with Nissan falling 0.18 percent to 1,075 yen while Toyota ticked down 0.10 percent to 5,874 yen. Banking giant Mitsubishi UFJ was up 0.09 percent at 734 yen. The dollar fetched 110.03 yen, against 109.91 in New York and 110.28 yen in Tokyo earlier Monday.