Pound gains amid Brexit morass as bank earnings boost Wall Street

In the United States, investors were encouraged by earnings reports from Bank of America and Goldman Sachs that easily topped analyst expectations. — Reuters pic
In the United States, investors were encouraged by earnings reports from Bank of America and Goldman Sachs that easily topped analyst expectations. — Reuters pic

NEW YORK, Jan 17 — The British pound advanced yesterday as Prime Minister Theresa May survived a no-confidence vote, while worries about the US government shutdown limited stock market gains after strong bank earnings.

The pound gained ground against the euro and dollar after May narrowly beat back a challenge to her government by a 325-306 margin a day after a humiliating defeat on her Brexit deal.

The overwhelming rejection by the House of Commons of May’s plan to withdraw from the European Union prompted speculation of what would come next in the Brexit political morass. 

Some are betting on another referendum or an extension of the time-frame for Britain to negotiate the terms of divorce with the EU was much more likely than the worst-case scenario of a no-deal Brexit.

“Many people may be surprised that the pound is holding firm and the UK-heavy FTSE 250 index is rising off the back of Theresa May’s Brexit vote defeat,” Russ Mould, investment director at stockbroker AJ Bell, said ahead of Wednesday’s no-confidence vote.

“In essence the market believes we are going to get more time for negotiations, we’re less likely to have a hard, economically-damaging Brexit, or Brexit won’t happen at all.”

But he said it seems “inevitable” that the currency and equities “will be volatile for weeks or months to come until we have a definitive answer,” Mould added.

Gavin Friend at National Australia Bank, said “Momentum is shifting away from the harder Brexit route and towards a number of options ranging from postponement and second referendum.”

Shutdown hit?

Meanwhile, in the United States, investors were encouraged by earnings reports from Bank of America and Goldman Sachs that easily topped analyst expectations.

Goldman surged nearly 10 per cent, while Bank of America jumped 7.2 per cent. The results also boosted other large banks that had already reported results.

Maris Ogg of Tower Bridge Advisors said investors have been encouraged by banking executives’ characterization of the US economy as basically sound.

“Generally the tone of the earning calls is cautiously optimistic,” she said. “Investors have been breathing a sigh of relief that the commentaries from managements have not been terribly negative.”

Still, some analysts said the ongoing US government shutdown — now in its 25th day — was keeping investor enthusiasm in check. Oxford Economics estimated the weekly hit to US growth at US$700 million.

And the Federal Reserve’s “beige book” report on the US economy showed that political and trade uncertainty was undermining business confidence, even though the growth continues at least a modest pace in most of the country.

But Sam Stovall, chief investment strategist at CFRA Research, said the market was picking up confidence as January’s stock market gains mount.

“The early read on January Barometer has issued a ‘thumbs up’ for the year, as investors unwind the negative sentiment that prevailed through late last year,” Stovall said. — AFP