Asian shares rally after EU agrees to change Brexit deal

Shanghai — The pound jumped and Asian shares rallied on Tuesday after the European commission agreed to changes in a Brexit deal ahead of a vote in the British parliament on a divorce agreement.

European commission head Jean-Claude Juncker agreed to additional assurances in an updated Brexit deal with British Prime Minister Theresa May on Monday, but warned UK legislators would not get a third chance to endorse it.

Sterling, which had risen ahead of the talks between May and Juncker, extended gains in the hope the changes may be enough to sway rebellious British MPs who have threatened to vote down May’s plan again on Tuesday.

The pound was up 0.5%, buying $1.3215 and taking its gains over two days to more than 1.5%.

A lower likelihood of crashing out of the EU with no Brexit deal could help to inject some bullish sentiment into equity markets by eliminating one of the three major concerns of global investors, alongside trade and slowing global growth, said Greg McKenna, strategist at McKenna Macro.

“Take Brexit off the table and I think some of the real money flows that appear to have turned up late last week are likely to be there again. So I think it helps change the backdrop a little bit,” he said.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1.08%, with early gains reinforced by a rise in Chinese shares and oil companies, which were buoyed by higher oil prices.

Chinese blue chips rose 1.3%, extending the previous day’s 2% gain.

Despite slowing domestic economic growth and uncertainty about the outlook for trade negotiations between China and the US, Chinese markets have been buoyed in 2019 by investors’ expectations of more stimulus to cushion any downturn.

The CSI300 index has risen more than 25% so far in 2019.

But Oliver Jones, market economist at Capital Economics cautioned that the Chinese rally is “built on shaky foundations”.

“The surge in China’s mainland equity markets since the start of the year looks excessive, even allowing for renewed optimism about stimulus in China and the possibility of a US-China trade deal,” he said in a note.

“Since we are anticipating more economic weakness in both China and the rest of the world regardless, we suspect that the Shanghai and Shenzhen markets will fall back sharply later in the year.”

Australian shares were up 0.4%, while Japan’s Nikkei stock index jumped 1.9%, helped by a weaker yen.

The amended Brexit deal gave a further boost to investors’ appetite for riskier assets, after global equity indices climbed overnight on gains in technology stocks and expectations of more stimulus from China.

US shares rebounded from a week-long losing streak, with news that US chip supplier Nvidia has agreed to buy Israeli chip designer Mellanox Technologies for $6.8bn helping to boost tech shares.

A nearly 7% gain in Nvidia shares helped to propel the Nasdaq Composite 2.02% higher, to 7,558.06 points.

The Dow Jones Industrial Average rose 0.79%, with gains tempered by a 5.3% drop in Boeing shares after some airlines grounded the company’s new 737 Max 8 passenger jet following a second deadly crash of the airliner in five months.

The S&P 500 gained 1.47% to 2,783.3.

Rising yields

The market’s turn toward riskier assets lifted yields on US treasury bonds, with benchmark 10-year treasury notes at 2.6645% compared with its US close of 2.641% on Monday.

The two-year yield was at 2.4998% compared with a US close of 2.477%.

The dollar index, which measures the greenback against a basket of rivals, shed 0.2% to 97.036. But rising risk appetite weighed on the safe-haven yen, pushing the dollar up 0.16% to ¥111.37.

The euro was up 0.13% on the day at $1.1262.

In commodity markets, oil prices rose on a combination of strong demand and supply cuts by oil cartel Opec.

A political and economic crisis in Opec-member Venezuela is also seen as lifting crude prices.

Venezuela’s opposition-run congress on Monday declared a “state of alarm” over a five-day power blackout that has crippled the country’s oil exports and left millions of citizens scrambling to find food and water.

US crude was up 0.5% at $57.08 a barrel and Brent crude was 0.4% higher at $66.84.

Spot gold jumped 0.2% to $1,296.45/oz.

Reuters