Pound recovers as markets eye Brexit and US Fed

London — London stocks rallied on Wednesday and the pound rebounded from no-deal Brexit fears, while traders awaited the outcome of a US Federal Reserve policy meeting and crunch trade talks between China and the US.

On Tuesday, British Prime Minister Theresa May won a mandate from UK law makers to try to renegotiate her Brexit deal with Brussels. She is now hoping to unlock the impasse despite Brussels insisting that it will not budge.

“Both the pound and the FTSE 100 are rising … as the markets digest yesterday’s parliamentary vote which saw MPs rejecting a no-deal Brexit but crucially backing an attempt to re-write the withdrawal agreement,” noted Joshua Mahony, senior market analyst at IG trading group.

The pound initially fell, however, “because [the] vote leaves a no-deal Brexit on the table”, said Neil Wilson, chief market analyst at Markets.com.

Having comprehensively rejected the Brexit withdrawal agreement last month, late on Tuesday British MPs backed an amendment saying they would support the deal if its controversial “backstop” clause concerning the Irish border was removed.

Minori Uchida, Tokyo head of global markets research at MUFG Bank, said market players “are still thinking that a hard Brexit will be avoided in the end” even if “the optimism is groundless”. “Hard Brexit risks are still here,” he said.

With Britain otherwise on course for a chaotic exit from the bloc on March 29, May admitted she faces a formidable challenge convincing Brussels to re-open an accord that took 18 excruciating months to conclude. And there is no sign that European leaders are prepared to unpick the backstop to salvage the deal.

US Fed decision

US stocks opened higher, meanwhile, with China, US monetary policy and earnings in focus.

Analysts at Charles Schwab brokerage said markets are “digesting ongoing trade tensions between the US and China ahead of discussions in Washington and awaiting [Wednesday’s] monetary policy decision from the Fed.”

Meanwhile, earnings at Dow members Apple and Boeing, and data on private-sector hiring, all came in better than expected.

Traders are looking ahead to the end of the Fed’s latest policy meeting, with hopes for some guidance on its plans for US interest rates this year.

Wednesday also sees the start of high-level US-China trade talks, with Beijing’s top trade negotiator due to meet US President Donald Trump during the two-day gathering. However, while markets have been supported by optimism over the talks in recent weeks, the US decision on Monday to charge Chinese telecoms titan Huawei on several counts of fraud and tech theft has muddied the waters.

Still, US treasury secretary Steven Mnuchin insisted the two issues are not linked and said he sees the chance of a trade deal if China offers the right concessions. “Some dealers have been sitting on their hands in advance of the meeting as a hopes aren’t overly high,” said CMC Markets analyst David Madden.

“Mnuchin … stated he expects ‘significant progress’ to be made, but given the strained relationship between the US and China over the Huawei situation, the trade talks might suffer.”

Shares in Apple rose 5.1% as trading opened, while those in Boeing climbed 6%.

AFP