Relief that the United States took a step away from imposing crushing restrictions on Huawei helped stocks recover yesterday, while the pound whiplashed on fresh Brexit drama.
After hitting a four-month low at $1.2685 the pound shot higher on speculation Prime Minister Theresa May was poised to offer lawmakers a chance to vote on holding a second Brexit referendum.
Sterling briefly jumped more than half a per cent yesterday after Prime Minister Theresa May set out yesterday a “new deal” for Brexit, offering sweeteners to opposition parties including a parliamentary vote on whether to hold a second EU referendum.
Three years since a 52-48% referendum vote in favour of leaving the European Union and almost two months after the planned exit date, May is mounting a last bid to try to get a deeply divided parliament to ratify her divorce deal with Brussels.
Despite offering what she described as “significant further changes”, many lawmakers, hardened in their positions for or against Brexit, have already decided not to vote next month for the Withdrawal Agreement Bill – legislation which would implement the terms of Britain’s departure.
Brexit uncertainty has grown in recent weeks after the breakdown of talks between May and the opposition Labour party.
That has set the stage for the thrice-rejected deal to fail again if, as now planned, it is put to vote in parliament next month.
Those concerns have weighed on the pound as the rejection of the deal yet again would probably pave the way for May to be replaced by a more hardline eurosceptic, possibly Boris Johnson.
“May’s latest proposals seems to be aimed at wooing over some of the opposition to support her deal but the opposition from her cabinet is dampening some of the gains,” said Lee Hardman, an FX strategist at MUFG based in London.
The pound rocketed 0.7% to $1.2815 from $1.2725, its highest since Friday. It later gave up most of those gains to trade at $1.2744, up 0.2% on the day.
Versus the euro, sterling jumped half a percent to 87.255 pence before settling at 87.58 pence, up 0.2% from its earlier level.
The jump in the pound rippled over to the wider foreign exchange markets, sending the British currency surging against the Japanese yen and the Swiss franc and pulling the broader dollar index back into negative territory.
Positioning indicators were broadly neutral, with long positions in the pound being pared back in recent weeks, leaving the pound vulnerable to large swings either way.
May outlined in a speech to lawmakers a series of incentives for MPs to support her Brexit deal, including the possibility of a vote on holding a second referendum, saying there was “one last chance” to end the deadlock.
Stocks took a hit on Monday after Google said it was beginning to sever ties with Chinese telecoms giant Huawei, days after US President Donald Trump’s decision to bar it from the US market.
The Huawei development – with the US citing national security concerns – has ratcheted up pressure in the trade stand-off between Washington and Beijing, which was once thought to have been close to conclusion.
But the decision late Monday by the US Commerce Department to issue a 90-day reprieve on the ban on dealing with Huawei was greeted by markets yesterday with relief.
“Stock markets in Europe have rallied today on the back of the news that the US granted Huawei a 90-day extension before the ban will be implemented,” said market analyst David Madden at CMC Markets UK.
“This is seen as a sign the US administration don’t want to turn up the heat on China just yet, but the ball is in Beijing’s court,” he said.
“The trade standoff is still very much alive, but this appears to be a slight reduction in hostilities, and some traders are taking the opportunity to snap up equities.”
Europe’s main markets closed higher, while Wall Street was in the green approaching midday.
London’s FTSE 100 gained 0.3% to 7,328.92 points, Frankfurt’s DAX 30 rose 0.9% to 12,143.47 and Paris’s CAC 40 was up 0.5% to 5,385.46 points at close yesterday.
In commodities trading, oil prices dipped after major producers said supplies were sufficient and stockpiles still rising.
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