Trade talk lifts shares, pound whipsawed by Brexit drama

[September 24, 2019]  By Marc Jones

LONDON (Reuters) - Rekindled U.S.-China trade hopes lifted share markets on Tuesday, while the pound was whipsawed by another dramatic Brexit twist after the UK's top court ruled the government's suspension of parliament had been unlawful.

There was more gloomy data from Germany to contend with too, but Monday's confirmation that U.S. Treasury Secretary Steven Mnuchin's and Trade Representative Robert Lighthizer would meet Chinese Vice Premier Liu He in two weeks' time raised spirits.

The pan-European STOXX 600 index rose 0.3%, with the eurozone banking index up 0.6% after it had slumped 2.8% in the previous session. [.EU] Germany's bond yields were also a touch higher after Monday's dour PMI data had triggered their biggest fall since June.

"A perceived lull in U.S.-China trade tensions has eased market fears about an economic downturn," a group of BlackRock's investment strategists wrote in a note.

Currency market moves were mostly small-scale, with one notable exception - the pound.

Traders had waited for a Supreme Court ruling on UK Prime Minister's Boris Johnson five-week suspension of parliament -- a move known as prorogation in Westminster speak -- and when it came it was dramatic and blunt. The move was "unlawful".

Sterling initially climbed as high $1.2487 on the view it would help prevent the UK being bundled toward a 'no-deal' Brexit at the end of October. But it quickly ran out of momentum and retreated to $1.2460, up a modest 0.2% on the day.

"I wasn't surprised to see the currency hop higher but I also wasn't surprised to see cable (pound vs the dollar) run out of steam ahead of $1.25," said TD Securities' European head of currency strategy Ned Rumpeltin.

Johnson is now likely to head to his Conservative party's annual conference at the weekend and rally his troops in preparation for a likely national election which will be a bitter fight over Brexit.

"He is going to have to rally his base and he is going to do that around hard Brexit," Rumpeltin said. "That will be a moment of clarity for the FX market. It will look at the polling and the Conservatives are leading in the polls."

GOOD TO TALK

MSCI's broadest regional Asia share index inched up 0.1%, led by 0.6% gains in mainland Chinese shares after the vice head of China's state planner said Beijing will step up efforts to stabilize growth.

 The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 23, 2019. REUTERS/Staff/File Photo

Japan's Nikkei ended up 0.2% after a market holiday on Monday. Wall Street looked on track for modest gains, with S&P futures up 0.25%.

Japan's yen traded at 107.62 yen per dollar, after reaching two-week highs of 107.32 the previous day.

"The comments (from Mnuchin on China trade talks) gave a little bit of boost to sentiment, but markets are still not that optimistic, either," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

"It seems there have been a lot going on behind the scenes," he said, referring to U.S. President Donald Trump's questioning a decision by his top trade negotiators to ask Chinese officials to delay a planned trip to U.S. farming regions.

That cancellation was seen by markets as a sign all is not well in the U.S.-China talks and had helped send share prices lower on Friday.

Among the main commodities, oil prices dipped on expectations of subdued demand although uncertainty remained about whether Saudi Arabia would be able to fully restore output after recent attacks on its oil facilities.

Brent crude futures fell 40 cents to $64.37 a barrel by 0624 GMT. West Texas Intermediate futures were down 33 cents to $58.31.

"The demand side of the equation is back in focus," said Michael McCarthy, senior market analyst at CMC Markets in Sydney, pointing to sluggish manufacturing numbers in leading economies in Europe as well as Japan.

(Additional reporting by Florence Tan in Singapore and Hideyuki Sano in Tokyo; editing by Larry King and Ed Osmond)

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