Global stocks slide as trade optimism wanes; pound up

Bloomberg

Global stocks dropped on Tuesday as the rush of optimism over US-China trade talks from earlier in the week faded. The pound rallied as UK Prime Minister Theresa May promised a vote to delay Brexit if her proposed deal fails.
S&P 500 Index futures slid and European stocks edged lower after US President Donald Trump raised the possibility of signing a new trade deal with Chinese counterpart Xi Jinping, but cautioned an agreement “might not happen at all.” Tesla fell 2.5 percent in pre-market trading after regulators asked a judge to hold Elon Musk in contempt for violating last year’s SEC settlement.
Equities slipped throughout Asia and the yen strengthened. Treasuries climbed while European bonds were mixed. The dollar held losses after data showed US housing starts
tumbled in December.
The pound rallied to the highest level versus the euro since 2017 and traded near the day’s highs as UK Prime Minister Theresa May addressed Parliament, confirming there was a path to delaying Brexit. The opposition Labour party also changed tack, coming out in favour of a second vote on the divorce.
Lacking fresh developments on trade after President Trump’s announcement that he will postpone the date for boosting tariffs on Chinese imports, investors are left contemplating a mixed picture in the world economy, such as ebbing forecasts for global growth. Monetary policy is also in focus, with semiannual testimony on the US economy from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday.
“The markets have really started to factor in the possibility of rate cuts,’’ Dwyfor Evans, a macro strategist at State Street Global Markets in Hong Kong, said on Bloomberg Television. Powell if anything “needs to probably bring the market back on track to argue that, well, we’re just staying put for now,’’ he said.
Elsewhere, WTI crude was steady after tumbling the most in four weeks on criticism from Trump that prices are too high. Iron ore retreated with Barclays warning it may erase all its dam-disaster gains this year.

Pound Surges, UK Stocks Fall
UK government bonds and the FTSE 100 Index slipped as Prime Minister Theresa May is set to address Parliament on the next steps in the Brexit process following reports she is considering a deadline extension. The opposition Labour party, meanwhile, came out in favour of a second vote on whether the UK should leave the European Union.
Sterling jumped almost 1 percent to 85.88 pence per euro, the strongest level since May 2017, before paring the gain to about 0.7 percent. Against the dollar, it climbed as much as 1.1 percent to $1.3238, the highest since October. The yield on UK 10-year bonds rose three basis points to 1.21 percent. The FTSE 100 Index of shares was down 1.1 percent.
The UK currency was further boosted as Bank of England Governor Mark Carney and fellow policy makers testified in front of a parliamentary committee. Their comments on inflation suggested the BOE sees price growth staying above target regardless of the Brexit outcome, giving sterling another lift, according to Neil Jones, head of hedge fund sales at Mizuho Bank Ltd.
The pound would rally much more should a second referendum be confirmed, than on a delay to Brexit, according to a survey of strategists conducted by Bloomberg last month. Still, it’s harder to see a way to reach this outcome whereas the EU has already said it would consider allowing the UK more time to negotiate.
A Brexit delay is already largely priced into the exchange rate, according to RBC strategist Adam Cole, while Nomura International’s Jordan Rochester said the bank had been hearing from clients that longer-term investors aren’t buying into the rally and likely won’t until May’s deal is done.