World shares back off slightly as pound leaps on Brexit hopes

London — World shares took a breather on Tuesday having scaled a five-month high, while Britain’s pound charged to a one-month high on renewed speculation that UK Prime Minister Theresa May is being bundled towards delaying Brexit.

Asia’s rally on hopes of a US-China trade deal ran into profit-taking overnight and it was a bumpy start for Europe as the pound’s leap to $1.3150 and some poor company news shoved London’s FTSE 100 down as much as 1%.

Oil markets were steadied after a blast from US President Donald Trump at oil cartel Opec for “too high” prices triggered the biggest tumble of the year. Bond yields were also drooping but it was the forex moves that dominated.

Pound bulls latched onto reports that May is considering delaying the March 29 deadline for Britain’s exit from the EU, a day after the main Labour opposition party shifted towards supporting a second referendum. As well as its gains against the dollar, the pound was also up nearly half a percent against the euro to a one-month high at 86.31p.

“What we are seeing right now are the downside [Brexit] risks either being lowered or priced out,” said Nomura forex strategist Jordan Rochester.

The flip-side was a dollar near a one-week low against its main peers, as markets also waited for testimony from US Federal Reserve chair Jerome Powell that should shine some light on why it has backed away so sharply from further interest rate rises this year.

“The market will be looking for signs that the Fed remains comfortable with the current state of policy,” said Steven Dooley, currency strategist at Western Union Business Solutions. “The markets will also want to hear details about the eventual end of the Fed’s balance sheet reduction programme.”

Elsewhere, Indian markets were rattled by flaring border tensions between India and Pakistan, both of which have nuclear arms. The broader India NSE stock index skidded, the rupee fell and bonds rose in a flight to safety.

Australian shares lost 0.9%, weighed by energy stocks as oil prices tumbled overnight, Japan’s Nikkei stumbled 0.4% and Chinese shares closed down after surging on the US trade hopes on Monday. Added together, it saw MSCI’s broadest index of Asia-Pacific shares dip 0.5%.

JPMorgan analysts urged investors to curb some of their enthusiasm. “It is notable that 1) no new deadline date [on US China trade talks] has been set and 2) there weren’t any formal statements published from either side following the talks in Washington.”

Investors will also keep an eye on a two-day US-North Korea summit this week where leaders of the two countries will try to reach an agreement on Pyongyang’s pledge to give up its nuclear weapon programme.

Reuters