Sterling and Asian shares rise on May win and trade moves
Asian shares and the British pound moved higher on Thursday as investors breathed a sigh of relief after British Prime Minister Theresa May survived a no-confidence vote, and as China appeared to be taking more steps to meet US demands to open its markets.
After the vote, sterling rallied from a 20-month low and was holding on to gains early in the Asian trading day, trading at $1.2629. Any respite for sterling was expected to be brief, however, as May appeared no closer to getting her EU divorce agreement through parliament, raising the risk of a chaotic exit in March.
“The fact remains that the EU is highly unlikely to offer the reassurance MPs are demanding on the Irish backstop,” analysts at ING said, adding there was a risk that a parliamentary vote on the Brexit deal will not take place until later in the first quarter of 2019.
“In the meantime, the lack of clarity and elevated risk of ‘no deal’ is set to see economic activity slow further,” they said.
ING expects UK growth to halve in the fourth quarter from the third.
The euro was also higher, up 0.04% at $1.1375 after Italy’s government offered to lower its deficit target in 2019 to 2.04% of GDP, below the 2.4% level the European Commission had rejected as too high.
The European Central Bank was all but certain to formally end its lavish bond purchase scheme on Thursday but will take an increasingly dim view on growth, raising the odds that its next step in removing stimulus will be delayed.
The dollar index, which tracks the greenback against a basket of six rivals, fell to 97.020. The dollar rose a hair against Japan’s currency to ¥113.30.
In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2% in early Asian trade after US stocks finished the previous session higher, amid optimism for progress in ChinaUS trade talks. Japan’s Nikkei stock index gained 0.8%, while Australian shares were up 0.2%.
Chinese state-owned companies have bought more than 1.5-million tons of US soya beans in the first major US purchases in more than six months.
The purchases are the most concrete evidence yet that China is making good on pledges made when US President Donald Trump and Chinese President Xi Jinping met on December 1 and agreed to a 90-day detente to negotiate a trade deal.
China also appears to be toning down its high-tech industrial development push, dubbed Made in China 2025, which has long irked the US, according to new guidance to local governments. But it remains to be seen if Beijing will meet Washington’s demands for stronger protection for US intellectual property.
Beijing plans to replace the initiative with a new one to play down China’s bid to dominate manufacturing and will seek to be more open to participation by foreign firms, The Wall Street Journal reported on Wednesday, citing people briefed on the matter.
THE FACT REMAINS THAT THE EU IS HIGHLY UNLIKELY TO OFFER THE REASSURANCE MPS ARE DEMANDING ON THE IRISH BACKSTOP