*The trading week that started with a higher pound and lower stock markets has made a sudden turnaround, with the pound falling on Tuesday and stock indexes surging on hopes for a new U.S.-China trade deal.
Pound Struggles
The British pound declined by as much as 0.7 percent against the dollar before rebounding slightly, falling to as low as $1.3236 on Tuesday, pressured by reports that UK Prime Minister Boris Johnson was going to take a hard stance on Britain’s transition period after Brexit. The pound was down 0.33 percent against the greenback as of 1:52 p.m. HK/SIN, to $1.3285, distancing itself further from 1 ½ year highs hit on Friday after the UK election results confirmed Boris Johnson’s victory.
Although some analysts were expecting Johnson to take a flexible approach to the Brexit, his recently proposed Withdrawal Agreement Bill would require the UK to complete its departure from the European Union by the last day of 2020, no matter what. The first stage of Brexit is currently set for January 31, 2020. Expectations for a flexible end date were based on the fact that negotiations and policymaking is likely to take upwards of a year, but Johnson’s hard-line approach will likely cause him to rush the process or make concessions that concern traders (and UK citizens).
Global Stock Markets Reverse
After a day of mixed trading during Monday’s Asian session, Asian benchmarks were broadly higher on Tuesday, riding the optimism set during Monday’s Wall Street session which saw all three benchmark indexes close higher. China’s benchmarks were the only ones that were higher on Monday, and they rode the wave this morning, with the Shanghai Composite up 1.56 percent and the Shenzhen Composite up 1.45 percent. South Korea’s Kospi surged 1.11 percent, and Hong Kong’s Hang Seng Index gained 1.36 percent. Japan’s Nikkei 225, struggling in the past few sessions, was up 0.45 percent.
The gains were buoyed by optimism about Washington’s trade deal with China, which U.S. Trade Representative Robert Lighthizer said over the weekend is “totally done”, despite concerns by global analysts that China hasn’t fully agreed to the nuances of the language and terms. Also pushing markets higher was a positive reading out of the U.S. on Monday which showed that the country’s economy remains strong. Homebuilder sentiment hit its highest reading in over 20 years, crushing market expectations for a flat reading, and improving optimism worldwide.
Despite the sharp movements on Tuesday, analysts expect the markets to quiet down as the holiday season approaches. End-of-the-year selloffs are also likely as traders try to balance their portfolios and offset tax gains before the end of the fiscal year.