Events – or lack thereof – over the weekend knocked the pound’s confidence, causing it to tumble at the week’s open.
Though sterling has held onto most of last week’s stupendous growth, Monday has seen doubt start to creep back in surrounding the likelihood of a Brexit solution. After a weekend of talks between the UK and EU there reportedly are still ‘big gaps’ over custom arrangements, with Michael Barnier claiming it would take a renewed ‘political impulse’ from Boris Johnson for a deal to be produced this week.
The PM, meanwhile, told his cabinet that while the much-talked about ‘pathway’ to a deal was open, a ‘significant amount of work’ was needed, and that the country ‘must remain prepared to leave on 31 October’. This despite Johnson being legally required to ask the EU for an extension if an agreement isn’t reached by Saturday – the date of the first Commons weekend meeting since the Falklands war.
The ongoing uncertainty caused cable to fall 0.6%, sending it under $1.259 but leaving it well above the sub-$1.22, 5-week lows struck last Wednesday. Against the euro the pound’s losses were kept to just 0.3%; not a bad decline given a) the lack of progress, and b) the extent of its recent surge.
Sadly for the FTSE, which even at its best is being left behind by its peers, it couldn’t make the most of this situation. Instead of a schadenfreude-based rise, the UK index slipped half a percent, leaving it only a handful of points above 7200. Such losses were echoed in the Eurozone, where the DAX and CAC slipped 0.5% and 0.7% respectively.
This suggests a level of scepticism over the ‘partial trade deal’ between the US and China, or, at the very least, a reticence to build on the muscular growth posted in the back half of last week in light of the sketchy agreement between the two superpowers.
Suspending October’s tariff hike on Chinese imports, which was set to take place on Tuesday, is all well and good; but with September’s increase still in place, and another set for December, this wasn’t the coming together investors were quite hoping for. They may be waiting to see what the next 3 weeks – the period in which ‘phase 1’ of the trade deal is set to be written – will bring.
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