HONG KONG: Asian markets retreated Wednesday after two days of gains but the pound enjoyed some stability after the previous day’s sharp losses sparked by Theresa May’s Brexit deal being tossed out by MPs.
Sterling saw wild fluctuations Tuesday as it hit a near two-year high on news the prime minister had won a last-minute revision to her agreement with the EU, then tanked to a three-week low as it was rejected later in the day at Westminster.
The decision means lawmakers will vote Wednesday on whether to leave the EU on March 29 without an economic agreement – which is expected to fail – then Thursday on whether to extend the deadline.
However, there remains a lot of uncertainty, with some observers suggesting the latest developments put the country a step closer to another referendum, while others say it could make a no-deal exit more likely.
“My tuppence is that parliament has, in their own mind, seized control of the Brexit process and will duly ask and likely get an extension to the 29 March exit date,“ said Oanda senior market analyst Jeffrey Halley.
“The breathing space granted will be used by whomever to renegotiate a more palatable Brexit deal for the UK. Except nobody has asked the Europeans yet. A short-term gain may yet belie long-term pain.”
Slope or cliff?
And Michael Hewson, chief market analyst at CMC Markets in Britain, warned there was no guarantee a delay would automatically be allowed.
“Voting against a no-deal Brexit doesn’t of itself remove the option of no deal, as this is already currently written in statute, and the EU could well decide to play hard ball and take the view that the only options available are the current deal, or to revoke article 50,“ he said in a note.
The news from London added to selling pressure on Asian equity markets, which had enjoyed a bounce Monday and Tuesday from last week’s battering, with investors still on edge over the state of the global economy.
Tokyo ended 1% lower, while Shanghai fell 1.1% and Hong Kong lost 0.6% in the afternoon.
Seoul shed 0.4%, Sydney gave up 0.2% and Singapore was off 0.8%. Wellington and Manila also retreated, though Taipei, Mumbai and Jakarta were slightly higher.
With very little news coming out of Beijing and Washington regarding the trade talks, investors are moving to the sidelines until there is something concrete to buy on.
“Until the world’s two largest economies conclude an agreement... it will be difficult to gauge a clearer picture of the global economy in 2019,“ added Halley.
“The outcome of the trade talks – and perhaps the US-eurozone will likely follow – will dictate whether we will gently roll down the slope or off the edge of the cliff.” — AFP