Pound lifted by Johnson’s latest defeat, Asian equities struggle

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. — Reuters pic
Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. — Reuters pic

HONG KONG, Sept 10 — The pound bounced today after Prime Minister Boris Johnson again failed to get MPs to back a snap election.

Just before Westminster lawmakers broke up for five weeks, they inflicted yet another defeat on the new premier, who has been thwarted in his attempts to call an early poll as he looks to win a majority in parliament and push through a no-deal Brexit.

MPs had earlier also voted to demand the government publish confidential documents about Britain’s readiness to leave the European Union on October 31 without a divorce deal.

The latest defeat on calling an election saw the pound — which had been slipping through yesterday — rally more than one per cent against the dollar from as low as US$1.2234 to as much as US$1.2385, its highest level since the end of July.

Data showing the British economy faring better than expected also provided support to sterling.

Johnson insists he will not ask for a delay to the October 31 Brexit date, despite MPs passing a bill that could force him to do so if he fails to reach an agreement with the EU.

Asian equity traders struggled after last week’s rally as the European Central Bank prepares for a much-anticipated meeting on Thursday with speculation it will unveil fresh economy-boosting measures, including an interest rate cut deeper into negative territory.

“With the two per cent inflation target still a Japanese-style distant memory and growth slowing in Germany, Europe’s engine, the ECB had to do something,” said OANDA senior market analyst Jeffrey Halley.

“Whatever comes out on Thursday will test the limits of the effectiveness of monetary policy.”

Crude builds on gains

There were warnings from some analysts that a disappointing response from the bank could deal a heavy blow to equities.

The ECB announcement comes a week before the Federal Reserve’s next meeting, where it is tipped to announce a further reduction in borrowing costs following weak jobs figures and signs of slowing in the economy.

However, other, more upbeat readings have kept traders guessing about the Fed’s plans, while reports on consumer prices and retail sales this week will provide more of an idea about the outlook.

Hong Kong was flat while Shanghai slipped 0.1 per cent as data showed Chinese producer prices continued to fall in August, hit by falling demand and the US trade war. Consumer prices stabilised with major support coming from a surge in pork prices caused by swine fever that has ravaged the country’s pig industry.

Neil Wilson, chief market analyst at Markets.com, flagged concerns about the impact of the weakness in China.

“The fear is not just that it signals weakness in domestic and overseas demand, but that China is exporting deflation by cutting prices and making it even harder for central banks like the ECB to achieve their inflation goals,” he said in a note.

Sydney dropped 0.5 per cent, while Taipei, Wellington, Bangkok and Manila were also well down.

However, Tokyo ended 0.4 per cent higher, while Singapore and Seoul were in positive territory.

In early European trade London dipped 0.4 per cent, while Paris and Frankfurt each lost 0.2 per cent.

There was little major reaction to US Treasury Secretary Steven Mnuchin saying there had been “lots of progress” on trade talks between China and the US.

Dealers are instead waiting for more concrete developments as the two sides prepare for high-level talks in Washington next month.

Regional energy firms were given a leg-up by thanks to gains in oil prices that came after Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman, said output cuts would benefit all exporting nations.

The remarks suggested he would support reductions to address an oversupplied market and sagging prices.

Key figures around 0810 GMT

Tokyo – Nikkei 225: UP 0.4 per cent at 21,392.10 (close)

Hong Kong – Hang Seng: FLAT at 26,683.68 (close)

Shanghai – Composite: DOWN 0.1 per cent at 3,021.20 (close)

London – FTSE 100: DOWN 0.4 per cent at 7,208.83

Pound/dollar: UP at US$1.2360 from US$1.2342 at 2100 GMT

Euro/pound: DOWN at 89.42 pence from 89.45 pence

Euro/dollar: UP at US$1.1051 from US$1.1046

Dollar/yen: UP at 107.32 yen from 107.23 yen

West Texas Intermediate: UP 12 cents at US$57.97 per barrel

Brent North Sea crude: UP 11 cents at US$62.70 per barrel

New York – Dow: UP 0.1 per cent at 26,835.51 (close)


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