Shares lose steam, sterling off five-month peak with Brexit talks set to resume

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© Reuters. FILE PHOTO: A man looks on in front of an electronic board showing stock information at a brokerage house in Nanjing© Reuters. FILE PHOTO: A man looks on in front of an electronic board showing stock information at a brokerage house in Nanjing

By Swati Pandey and Hideyuki Sano

SYDNEY/TOKYO (Reuters) – Shares markets lost some steam in Asian trading on Wednesday while sterling came off five-month highs as investors remained uncertain whether crunch talks in Brussels would lead to a deal to avoid a disorderly British exit from the European Union.

European stocks were on track to open lower after big gains the previous day, with pan-European Euro Stoxx 50 futures () down 0.19%, German DAX futures () shedding 0.25% and futures () losing 0.39%.

U.S. S&P500 futures fell 0.3% also on rising caution over U.S-China trade deal after China lambasted new legislation taking a hard line on China.

U.S. and European shares had jumped on Tuesday as officials and diplomats involved in Britain’s negotiations with the EU said differences between the two sides had been narrowed significantly.

As last-ditch talks continued well beyond midnight, caution set in among investors, and the British pound slipped back to $1.2752, dropping 0.3%, having shot up to $1.28 on Tuesday, a level unseen since May 21.

The pound had strengthened nearly 5% over the past week as investors rushed to reprice the prospect of a last-minute Brexit deal before the end-October deadline.

The EU’s chief Brexit negotiator Michael Barnier had been demanding a legal text of any agreement by midnight U.K. time. However, the talks between Britain’s Brexit negotiator David Frost and the EU’s executive European Commission went well past midnight in Brussels, and were set to resume on Wednesday.

The EU will determine whether a deal is fit to be put to Thursday’s leaders’ summit for consideration, but even then there is a question whether Britain’s minority government could win approval for any deal from the country’s divided parliament.

“Watching the UK news channels last night, the arithmetic for achieving said approval is challenging to say the least,” analysts at National Australia Bank wrote in a note.

Many Asian share markets still held some gains in the wake of Tuesday gains by U.S. and European equities.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4% while Japan’s Nikkei () jumped 1.5%, hitting 10-month highs.

South Korea’s KOSPI index () climbed 0.6%, encouraged by South Korea’s central bank cutting its policy interest rate for the second time in three months.

Stronger-than-expected earnings from major U.S. banks JPMorgan (N:), Citigroup (N:) and Wells Fargo (N:) also boosted equities even as the International Monetary Fund downgraded its 2019 global growth forecast for a fifth time.

Indeed, news on the U.S.-China trade front has been less encouraging.

Bloomberg reported, citing sources, that China will struggle to buy $50 billion of U.S. farm goods annually unless it removes retaliatory tariffs on American products, which would require reciprocal action by U.S. President Donald Trump.

China also said Beijing resolutely opposed new measures passed by the U.S. House of Representatives related to the Hong Kong protests and urged lawmakers to stop interfering.

The news helped to lift the safe-haven Japanese yen from a 2-1/2 month low hit on Tuesday against the dollar.

The yen stood at 108.68 per dollar, compared to Tuesday’s low of 108.90.

The dollar’s index against a basket of six major currencies hovered near three-week lows at 98.316. The euro () was little changed at $1.1032.

In commodities, added 10 cents to $58.84 a barrel, while rose 7 cents to $52.88 after falling the previous session over fears the unrelenting U.S.-China trade war would keep squeezing the global economy.

firmed slightly to $1,483.86 an ounce.