World equity markets ride out May’s Brexit defeat
Investors see Brexit delay growing more likely; pound steady
World equity markets yesterday rode out the heavy parliamentary defeat for British Prime Minister Theresa May’s Brexit deal, as investors saw potential for legislative deadlock to force London to delay its departure from the EU.
May’s government faced a no-confidence vote yesterday after the shattering rejection left Britain’s exit from the European Union in disarray. May is expected to survive the vote but investors see little sign of breakthrough on the Brexit impasse. As a result, they are increasingly betting on Britain being forced to postpone its planned March 29 exit, though few have any clarity on what that would mean for the country in the longer run.
Priced in
Markets had largely priced in the overnight defeat, and in early trade major European bourses mirrored overall resilience in Asian markets.
There, stocks were also lifted by signs that China will take more steps to bolster its slowing economy and the US Federal Reserve may pause its run of interest rate rises.
“The evidence yesterday is that there is a quorum of [British] MPs who will do what’s required to avoid a no-deal Brexit,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.
“So there’s a strong probability of an extension of Article 50 and that means there’s an increased probability of a softer Brexit or no Brexit at all.”
With some expecting a delay to raise chances of a softer Brexit, for example based on the opposition Labour party’s idea of membership of a permanent customs union, sterling was flat against the dollar at $1.2860.
The MSCI world equity index, which tracks shares in 47 countries, was flat, while MSCI’s main European Index gained 0.3 per cent.
Britain’s leading equity index fell 0.1 per cent in early trade, lagging European stocks which climbed 0.2 per cent.
The broader Euro STOXX 600 was up 0.3 per cent, while indexes in Germany, France and Spain all rose.
Earlier in the day MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.2 per cent, with South Korea’s Kospi and Hong Kong’s Hang Seng both scaling sixweek highs.