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European, UK shares rally after parliament votes down no-deal Brexit

Oil prices extend gains on output cuts, US sanctions. Asian shares falter after Chinese data.

European shares rallied to five-month highs on Thursday after Britain’s parliament removed a key source of uncertainty by rejecting a no-deal Brexit though sombre economic data and trade fears kept a lid on gains.

A pan-European equity index jumped 0.7% to the highest since October after Britain’s parliament vote on Wednesday.

The vote paves the way for a delay to Brexit beyond the current March 29 deadline which could lead to an EU divorce deal being agreed or even another referendum.

British stocks also rose 0.5%.

Goldman Sachs analysts told clients the probability of a no-deal Brexit had fallen to 5% from 10% after Wednesday vote. Despite the vote having no legal force, it carries considerable political force.

However, data from China, signalling further weakness in the world’s second-biggest economy, extended the steady stream of economic indicators that are painting a lacklustre picture of the global economy — the figures showed industrial output at 17-year lows and sluggish retail sales.

That pushed MSCI’s index of Asia-Pacific shares outside Japan 0.7% lower, though world shares trod water, staying well off 4-1/2 month highs hit recently . Wall Street was set for a marginally firmer open, futures showed.

Reports that China was seeking to delay trade talks also weighed on sentiment.

“Global markets have had a good start to this year but people are now starting to focus on the real issues like will there be a (US-China) trade deal, Brexit and the expectation that the Fed will raise rates possibly once more this year before maybe cutting rates,” said Peter Lowman, chief investment officer at Investment Quorum.

He was speaking of the US Federal Reserve which signalled recently that it was pressing pause on rate rises. Some players however reckon it could still raise interst rates one more time before calling time on its tightening campaign.

Lowman noted that despite China’s slowing growth, markets have had an impressive rally this year, with the MSCI index climbing about 10%, spurred by the Fed’s change of heart.

But many remain sceptical about how much further the share rally can run. The state of trade talks also weighed on investors after President Donald Trump said he was in no rush to complete an agreement. Trump and his Chinese counterpart Xi Jinping had been expected to hold a summit at the president’s Mar-a-Lago property in Florida later this month, but no date has been set for a meeting.

“Before we conclude that this market still has decent legs, we’d like to see equity prices supported by stronger macro data, lifted by better earnings trends, and confirmed by stable-to-rising yields,” David Lafferty, chief market strategist at Natixis, told clients.

Brexit

On currency markets, most action was in sterling which rallied after Wednesday’s vote by more than 1% to $1.3380, the highest since June 2018.

However, it has retreated from those levels to stand half a% lower as lawmakers prepared to vote again later in the day to delay Brexit until at least the end of June.

But analysts risks have not been eliminated with parliament still needing to find a way forward and all 27 EU nations needing to agree an extension on Brexit.

“There is gradual optimism being priced in and barring something highly unlikely, the possibility of an actual no-deal is not zero but less than 5%,” said Tim Graf, head of macro strategy at State Street Global Advisors.

But he added: “There is always the chance the EU won’t grant an extension if they are just going to be trying to push this deal through… that’s where the caution comes in.”

Elsewhere, the Australian dollar was down 0.35% , hit by the lacklustre economic data from China, Australia’s major trading partner. The yuan too fell 0.3%.

Oil prices extended overnight gains Brent adding 0.8% to $68.05, boosted by OPEC-led supply cuts, US sanctions against Venezuela and Iran and an unexpected dip in US crude oil stocks and production.

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