Asian shares cheered by Brexit deal hopes as sterling shines

Japan's Nikkei jumped 1.7 per cent while Australian shares added 0.9 per cent and South Korea's KOSPI index climbed 0.7 per cent. — Reuters pic
Japan's Nikkei jumped 1.7 per cent while Australian shares added 0.9 per cent and South Korea's KOSPI index climbed 0.7 per cent. — Reuters pic

SYDNEY, Oct 16 ― Asian shares took off today and sterling held near six-month highs as Britain and the EU made headway on a Brexit deal ahead of a leaders' summit though it remained unclear if London could avoid postponing its scheduled departure on October 31.

Officials and diplomats involved in negotiations over the acrimonious divorce between the world's fifth-largest economy and its biggest trading bloc said that differences over the terms of the split had narrowed significantly.

The news lit a fire under European and US equities, which jumped about 1 per cent yesterday. The British pound rocketed to US$1.28 (RM5.36), a level not seen since May 21. It gave back some of those gains today to be last at US$1.2759.

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

The positive sentiment extended today with MSCI's broadest index of Asia-Pacific shares outside Japan lifting 0.3 per cent.

Japan's Nikkei jumped 1.7 per cent while Australian shares added 0.9 per cent and South Korea's KOSPI index climbed 0.7 per cent.

Stronger-than-expected earnings from major US banks JPMorgan, Citigroup and Wells Fargo further boosted sentiment even as the International Monetary Fund downgraded its 2019 global growth forecast for a fifth time.

“Equities rallied everywhere supported by another set of Brexit headlines and as earnings season started in the United States,” JPMorgan analysts wrote in a client note.

“Officials cautioned that talks haven’t finished yet and there could yet be problems in hitting the deadline of midnight Tuesday,” they added.

The EU's chief Brexit negotiator Michael Barnier had been demanding a legal text of any agreement by midnight UK time. However, the talks were still going on between UK Brexit negotiator David Frost and the EU's executive European Commission past midnight in Brussels.

The EU will determine whether a deal is fit to be put to tomorrow's leaders' summit for consideration.

“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.

Elsewhere, news on the US-China trade front has been less encouraging.

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

“It is also pretty apparent that President Xi Jinping is not going to put his signature to a Phase I deal next month unless or until the US rescinds the threat of imposing additional tariffs on China on December 15,” NAB analysts said.

In currencies, the Japanese yen was at the lowest in 2-1/2 months against the greenback as investors flocked to riskier assets. It was last at 109.82 per dollar.

The dollar itself was under pressure against a basket of six major currencies with its index hovering near three-week lows at 98.288. The euro was flat at US$1.1369.

In commodities, Brent crude added 21 cents to US$58.94 a barrel, while US crude rose 20 cents to US$53.01 after falling the previous session over fears the unrelenting US-China trade war would keep squeezing the global economy.

Spot gold was barely changed at US$1,481.48 an ounce. ― Reuters

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