Stormy sterling sinks again, stocks wilt before Fed
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[July 30, 2019]
By Marc Jones
LONDON (Reuters) - Brewing no-deal Brexit
worries sent the pound sinking towards a two-year low versus the euro
and roughed up Irish bonds on Tuesday, while stock markets wilted before
what is expected to be the first cut in U.S. rates since the financial
Europe's markets suffered a stormy start as the pound followed its worst
day of the year with another 0.5% swoon against all the major
A blizzard of fiery talk on Monday that included the new UK Prime
Minister Boris Johnson calling his predecessor's Brexit plans dead and
its new foreign minister labelling the European Union "stubborn" kept
the slide intact.
Sterling fell as far as $1.2120, which was its lowest against the dollar
since March 2017, and to 91.85 pence per euro, the weakest since
Options markets were pointing to more pain too. Three-month implied
volatility, a contract that expires just before the Oct. 31 Brexit
deadline, jumped to over 11 vols, the highest since before March 29, the
original date for Britain to leave the European Union.
"The pound is in a very precarious state, it is as simple as that," said
TD Securities' European head of currency strategy Ned Rumpeltin.
"We are now in a different regime," he said, referring to Johnson's
explicit agenda of taking Britain out of the EU, whether or not
transitional trading agreements are in place.
It was not just sterling reeling either.
Irish government bond yield spreads over Germany hit their widest levels
in over a month at 24 basis points, on worries about the damage a
no-deal Brexit would do to Ireland's economy.
Other euro zone government bond yields were holding near recent lows
ahead of the Federal Reserve meeting which is expected to deliver a 25
basis point rate cut on Wednesday and potentially signal more on the
Germany's 10-year government bond yield was hovering near the minus
European shares slipped as grim forecasts from German chemicals and
drugs giant Bayer and airline Lufthansa soured sentiment, although the
weakness of the pound kept London's blue-chip FTSE index <.FTSE> just
about out of the red.
With concerns about global growth still bubbling among investors, a GfK
survey also showed German consumer morale worsening for the third month
in a row heading into August as trade disputes bit in Europe's biggest
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An investor looks at an electronic board showing stock information
at a brokerage house in Shanghai, China September 7, 2018. REUTERS/Aly
"Most markets are down this morning," said Simona Gambarini, a
markets economist at Capital Economics. "The S&P closed lower
yesterday. We have a few data releases regarding the eurozone that
could push equity prices down but I think everyone is waiting for
the Fed meeting."
Asia had been a bit more positive overnight.
Japan's Nikkei <.N225> rose 0.4%, showing limited reaction to the
Bank of Japan's widely anticipated decision to stand pat on monetary
policy. Shanghai <.SSEC> rose 0.3% and Hong Kong's Hang Seng edged
Australian stocks <.AXJO> stole the glory again though with another
record high, as buoyant mining shares added to tech-driven gains the
The BOJ added that it would ease policy again "without hesitation"
if the economy loses momentum for achieving the central bank's 2%
Also drawing some attention were U.S.-China trade negotiations which
begin in Shanghai on Tuesday, although expectations for progress
during the two-day meeting are low with the markets hoping the two
sides can at least detail commitments for "goodwill" gestures.
Among commodities, crude oil prices extended the previous day's
gains, with the Fed's expected easing fuelling optimism that it
would boost the economy and fuel demand in the world's biggest oil
U.S. crude futures were up 0.65% at $57.24 per barrel and Brent
crude added 0.6% to $64.09. Gold was down 0.1% at $1,425 per ounce.
(Reporting by Marc Jones; Editing by Andrew Cawthorne)
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