Pound and FTSE 250 stocks surge as Brexit hopes rise – as it happened

Graeme Wearden

from Economics | The Guardian on 2019-10-11 17:10 (#4SAHC)

Sterling hits a three-month high against the dollar and UK company shares rocket

6.09pm BST

Time to wrap up after a hectic day in the City.

Our UK Politics Live blog is continuing to monitor all the Brexit news:

6.06pm BST

Today's market moves show that the City believes a Brexit deal is rather more likely.

But, as Ken Odeluga of City Index writes, we don't know what's now being discussed -- or if enough MPs will support.

This renewed enthusiasm for talks can really only mean that there's something new to talk about; a new concession, and it must have come from Prime Minister Boris Johnson. Reports point to something linked to customs, what else? Whatever that something is obviously hasn't been disclosed. Yet only a kind of 'shadow backstop' that can be defined by the UK as 'not quite the backstop' will really cut the mustard. Briefings by Downing Street today have suggested Britain may now be open to a simple majority endorsement of any deal by Northern Ireland, instead of the Irish veto Johnson initially proposed. That would also be cogent with a 'backstop prequel', along the lines of its initial form from February 2018. The EU noted on Friday that its position on the backstop hasn't changed. Still, it's worth noting that a 'time-limited' backstop has been rallying quite sharply this week, on both sides.

At this stage, it remains touch and go whether Brexit-supporting Conservatives will support such a plan, having consistently rejected any notion of an Irish border. The former rebels have buttressed the PM from the worst effects of his loss of control over Parliament but may now become less reliable. How the rest of the House will take such plans is just as uncertain, as is the response from the small Northern Ireland unionist party that has played an outsize role in underpinning the Tories.

5.17pm BST

The UK-focused FTSE 250 index has just posted its biggest one-day gain in over nine years!

The Footsie 250, which contains medium-sized firms, closed 805 points higher tonight at 20,041 (a three-week high), a surge of 4.2% today.

The pound's jump versus both the Euro and the Dollar is propelled by twin jets - firstly, the prospect of an end to Brexit limbo and secondly, the fact that a deal reduces the likelihood of a Corbyn-led government at the next election, together with the spectre of nationalisation and aggressive corporate tax hikes.

5.12pm BST

David Madden of CMC Markets says City traders are hopeful that Brexit progress is being made:

The optimism surrounding Brexit has given British banks a boost as UK government bond yields have ticked up. Bank's lending margins usually improve in an environment of higher bond yields, hence why RBS, Lloyds, Barclays and HSBS are higher today.

The fear of a disorderly Brexit has been hanging over the property sector. In light of the upbeat sentiment, traders are snapping up Bovis Homes, Persimmon, Taylor Wimpey, in addition to Berkeley Homes.

4.43pm BST

Phew! After a frenetic day's trading, Britain's stock market has closed -- with some astonishing moves.

4.19pm BST

Newsflash: America's central bank has just announced it will buy $60bn of short-term government debt each month, until at least the second quarter of 2020.

The Federal Reserve says this is a "purely technical measure", to address recent liquidity shortages in the money markets. It claims it isn't changing its monetary policy stance either.

4.03pm BST

Chris Giles of the Financial Times makes an important point -- Boris Johnson appears to be trying to take Britain out of the EU with a harder Brexit than under Theresa May's deal.

And that, according to the government's own forecasts, means it will have a more severe impact on people's wealth.

If we're moving towards a fudged NI backstop Brexit deal with a standard UK free trade agreement, thread on the economic effects

tl:dr Johnson's is a much HARDER Brexit than May's

- UK government thinks this will end up making us ALL 2,250 A YEAR POORER

Read on for why

1/ pic.twitter.com/jPsAdh2Rtm

3.56pm BST

Economists at German bank Berenberg say that a Brexit deal would be better than crashing out of the EU... but still more disruptive than staying in the EU.

3.39pm BST

City bankers are telling their clients that a Brexit deal now looks a lot more likely.

Morgan Stanley has just predicted that a deal is 55% likely, up from 35% earlier this week.

Chance of a Brexit deal now 55%, up from 35%, following Varadkar-Johnson talks, says Morgan Stanley

JP Morgan not hedging their bets pic.twitter.com/721TcsQAte

3.30pm BST

The scale of today's stock market rally in London is quite remarkable, as The Wall Street Journal's James Mackintosh points out:

10 members of the FTSE 100 up more than 10% today. Last time this happened (for current membership of FTSE 100) was April 2009, when people were realizing that GFC was over.

3.21pm BST

Back in the US, Donald Trump has just tweeted that any trade deal with China won't need to be approved by Congress - he can just sign it himself.

One of the great things about the China Deal is the fact that, for various reasons, we do not have to go through the very long and politically complex Congressional Approval Process. When the deal is fully negotiated, I sign it myself on behalf of our Country. Fast and Clean!

3.05pm BST

The pound just hit $1.27, a new three and a half-month high.

I suspect some traders who had shorted sterling are now racing to close those bets (taking a hefty loss).

Cable touches 1.27 handle - frantic US holiday planning commences#GBP +1.53% against other currencies#GBPUSD 1.26963 +2.04%#EURGBP 0.87071 -1.56%#GBPAUD 1.86723 +1.49%#GBPJPY 137.799 +2.59%#GBPCAD 1.67588 +1.37%#GBPCHF 1.26634 +2.1%#GBPEUR 1.14851 +1.59% pic.twitter.com/Pwzf9LGfwV

3.02pm BST

Shares in Apple have just hit an all time high after Donald Trump's tweet, jumping 1.6% to $233.86.

3.01pm BST

Donald Trump has just tweeted that "good things" are happening at the trade war talks in Washington -- further raising hopes of a breakthrough today.

Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!

2.43pm BST

The European banking sector is having a stonking day, up 4.3% so far. UK and Irish financial stocks are leading the rally.

2.39pm BST

Over in New York, shares are rallying at the start of trading, buoyed by hopes of a US-China trade breakthrough.

The Dow, the S&P 500 and the Nasdaq indices have all gained more than 1%, adding to Thursday's gains.

Stocks jump more than 1% at the open as China trade talks continue for the second dayhttps://t.co/3ucHhKUytn pic.twitter.com/QJFm8bItNy

2.37pm BST

Today's surge back to $1.264 means the pound is at its highest levels since 1st July, when Boris Johnson and Jeremy Hunt were tussling for the leadership of the Conservative Party.

Pound now back to what I can only describe as pre-Boris Johnson levels. pic.twitter.com/MovyJUsX9A

2.19pm BST

Some EU diplomats are warning against undue exuberance, just because intensive 'tunnel' negotiations are underway.

#EU and #Britain to go into more intense #Brexit negotiations, two senior diplomatic sources said.
"It's a tunnel with a very small light at the end of it," one stressed.

And one EU diplomat tells me:

"So we seem to be going into a tunnel although that would imply a way out. So let's see. Barnier has been given space to negotiate over the weekend. He will revert to ambassadors pre-summit to discuss the guidance sought from leaders at council."

2.18pm BST

In Dublin, the Irish stock market is on an absolute tear, up almost 4% today.

1.42pm BST

Professor Costas Milas of the University of Liverpool has kindly sent over a graph, showing how economic uncertainty has hurt the pound in recent years.

Policy uncertainty growth spiked during the EU Referendum and then receded during Mrs May's negotiations. It accelerated again when Boris Johnson took over as Prime Minister in July 2019.

Signs of a breakthrough yesterday and today have lowered uncertainty growth and supported sterling. Fair to say that policy uncertainty is the main driver of our currency, whatever other economic fundamentals might suggest!

1.35pm BST

1.16pm BST

There's "nothing like a deadline to focus the mind," says Neil Wilson of Markets.com, as he watches the pound surge higher today.

Sterling soared as the EU 27 gave the green light for 'tunnel' negotiations to take place. Michel Barnier has the go-ahead from member states and, vitally, Ireland on the final stage of negotiations to take place behind closed doors.

Of course this rally is built on shaky foundations and is susceptible to a crash if the negotiations don't produce a deal for MPs to vote on.

The rally over the last two days has been astonishing - up four big figures in less than two sessions, it's on course for one of its best two-day rallies in about 25 years.

12.43pm BST

Ranko Berich, head of market analysis at Monex Europe, says the pound could hit $1.30, if a Brexit deal is reached.

But it could also plunge very sharply indeed if talks collapse, he warns:

"Sterling has reached a three month high against the US dollar, extending yesterday's rally, which at 2% against the US dollar was impressive in its own right.

"There's nothing complicated about the sterling rally we've seen over the past two days: no deal risk has fallen, and the pound has rallied accordingly. From our perspective there are two key takeaways from this week's price action; firstly that marginal changes in no-deal risk still have a dramatic effect on sterling and secondly, that at this point the market's estimation of no-deal risk is actually very low. Therefore, if talks collapse the sterling reaction will be seismic.

12.41pm BST

My colleague Daniel Boffey in Brussels has the latest on the Brexit talks:

Michel Barnier, the EU's chief Brexit negotiator, has secured the agreement of the EU27 to open intensive "tunnel" negotiations on Boris Johnson's latest proposals in a major boost for the British government.

Sources said ambassadors representing the EU member states had given the "green light" to accelerated negotiations, in the hope of agreeing terms by next Thursday's summit.

12.41pm BST

Shares in UK banks and house-builders are also rallying even harder, after the EU gave the green light for new, intensive talks.

Royal Bank of Scotland is now up 14%, which is good news for the taxpayer as it owns 62% of it.

12.32pm BST

Newsflash: The pound is bursting even higher, hitting $1.266 for the first time in three months.

That's a gain of two cents today, and more than four cents since Boris Johnson and Leo Varadkar met yesterday.

NEW: Michel Barnier has got green light from the EU27 for there to be tunnel negotiations

12.05pm BST

There must be a danger that the City is getting carried away today, as it drives up the pound.

Although there are encouraging noises from London, Brussels and Dublin, a new Brexit agreement hasn't been reached yet. And if Boris Johnson is moving towards some kind of Northern Ireland-only backstop, he'll struggle to persuade unionist MPs to back it.

I hate to be the thrower of cold water but when it comes to new UK proposals, whatever they might be, if PM moves towards EU position on customs, he's likely to lose most/all DUP +ERG support. New deal must be agreed not only by PM + EU but also by majority of MPs /1

Putting EU concession in back pocket - for electoral advantage at home - but leaving EU with no deal and having just played a major card .. Such is the level of mistrust between the two sides /3

Hopes not high that new Brexit deal is just around the corner but today - for those who want a deal - there is light in the tunnel. Unlikely to be fully sorted this month but during extension ..? /5

11.48am BST

Boom! Sterling has hit a three-month high against the US dollar, at $1.2588 for the first time since early July.

That means the pound has gained 3% against the US dollar since yesterday morning, which looks like its best two-day performance since July 2016.

Biggest two day rally on GBP since June 2016 - approaching 1.26 handle#GBP +0.92% against other currencies#GBPUSD 1.25884 +1.17%#EURGBP 0.87632 -0.93%#GBPAUD 1.85242 +0.68%#GBPJPY 136.296 +1.47%#GBPCAD 1.67135 +1.1%#GBPCHF 1.25647 +1.31%#GBPEUR 1.14114 +0.94%

11.23am BST

Britain's FTSE 250 index, which contains plenty of medium-sized, UK-focused companies, is absolutely soaring today.

It's gained 461 points, or 2.4%, taking it back to 19,698 -- a one-week high. Reuters says the FTSE 250 is on track for its best day since July 2016.

11.05am BST

The US stock market is expected to open sharply high too, on hopes of a breakthrough in the trade talks with China.

The Dow Jones industrial average is tipped to gain around 1% at the open, or 248 points, adding to the 150 points added yesterday.

10.53am BST

Nish Parekh, managing director of market risk solutions at Silicon Valley Bank, reckons the pound will keep rallying if we hear more optimism from Brussels today.

UK Brexit secretary Stephen Barclay and EU chief Brexit negotiator Michel Barnier could give a press conference shortly, after a long meeting this morning.

"Brexit emotions are running high as GBP whipsawed while Barnier and Barclay discussed the details of a potential deal. Cable broke $1.2500 as Tusk sees 'positive signals' on an agreement being reached.

Yesterday's price action demonstrated how bearish the market actually was. Expect an extension to the sterling rally if today's news continues the bullish trend."

The Barnier - Barclay breakfast ends after 2 hours and 20 minutes.. Big breakfast, big day. Sensible.

10.28am BST

Shares in UK banks and housebuilders are surging even higher, gaining up to 7% this morning.

Traders are rushing to buy equities after Donald Tusk told reporters in Nicosia that "We have received optimistic messages that there could be a deal."

10.16am BST

Newsflash: The pound has hit a three-week high after European Council president Donald Tusk said he had received 'promising signs' from Ireland about Brexit.

Speaking in Nicosia, Cyprus, Tusk also said there was still time (just) to avoid a no-deal Brexit.

The UK has still not come forward with a workable, realistic proposal. But I have received promising signals from Taoiseach @LeoVaradkar that a deal is possible. Even the slightest chance must be used. A no deal #Brexit will never be the choice of the EU.

10.09am BST

China's foreign ministry is being coy about the chances of a trade war breakthrough today.

Foreign Ministry spokesman Geng Shuang told reporters in Beijing that he hoped China can work with the United States for progress on trade consultations, without revealing how yesterday's negotiations went.

9.44am BST

Fresh tensions in the Middle East have driven the oil price up 2% today.

Brent crude is trading at $60.44 per barrel for the first time this month, after an explosion reportedly damaged an Iranian oil tanker traveling through the Red Sea.

Iran National Tanker Company Denies Reports It Claimed Missiles Struck The Iranian Tanker - Statement #OOTT

9.22am BST

Britain's aerospace industry is NOT happy about the latest Brexit developments.

They fear that Boris Johnson is dropping the previous commitment to remain closely aligned with some European regulations after Brexit, to protect the UK's high-tech industries.

Letter from @ADSgroupUK to Government reflects perceived weakening/dropping by Johnson Govt of "assurances" won by May Government reflected in existing negotiated Political Declaration with EU, that post Brexit UK wold maintain European regulation for sectors that requested it

Assurances sought not been given by officials or by ministers. So this sector, at least, has written saying that such regulatory divergence is a "serious risk to our sectors" and would result in "huge new costs and disruptions" and an "inability to shape safety rule making"/4

Existing Political Declaration contains clear reference to continued cooperation with European Aviation Safety Agency, European Chemicals Agency and European Medicines Agency and "in this context the UK will consider aligning with [European] Union rules in relevant areas".../5

At the time of that publication, PM May told Parliament that this would mean some sort of negotiated membership of those agencies, as requested by advanced manufacturers who operate on a pan European basis /6

But in recent weeks after PM Johnson's letters to Tusk & Juncker, when asked to reassure if this was still policy, this and other industries have been told only that UK seeks a "best in class free trade agreement". Indeed that is what Govt told us in statement last night /7 pic.twitter.com/udE7vSoVre

some private acknowledgement these commitments might get scrapped, alongside other legal commitments to maintaining a "level playing field" for social, environmental, labour, state aid & tax standards in new PD. This would allow freer hand on trade negotiations with eg US. /8

While focus understandably has been on No Deal and NI, this shift towards a harder/ cleaner Brexit with few/ no commitments of alignment for future in case of a deal is very consequential for advanced manufacturing & services & economy in Eng, Wales, Sco /9

9.03am BST

European stock markets have all risen in early trading, with the notable exception of London.

The hope medicine is doing its job, lifting Germany's DAX by 1%, and France and Italy both up 0.3%.

8.28am BST

Shares in British housebuilders and banks have jumped at the start of trading in London, as hopes of a Brexit breakthrough ripple through the City.

Persimmon, the UK's biggest house-builder, has surged by almost 5%, followed by Barratt Development (+4%) and Taylor Wimpey (+3.8%), making them the biggest risers on the FTSE 100 this morning.

8.08am BST

Donald Trump's claim that trade negotiations with China went "very well" yesterday has lifted stock markets across the Asia-Pacific region.

China's Shanghai Composite has gained 0.9%, as has Australia's S&P/ASX 200. Japan's Nikkei has risen by 1.15%, as optimism lifts equities at the end of another volatile week.

8.02am BST

Brexit optimism has pushed the pound sharply higher against the euro too, over a1.13 for the first time in a fortnight.

How exactly the leaders plan to solve the Irish customs puzzle remains blurry.

Boris Johnson proposed limiting custom checks away from the Northern Ireland border, while Varadkar responded that any custom checks inside Ireland would threaten the peace within his country. Dismissing custom inspections in Ireland would mean that goods could be smuggled from the UK to the EU and vice versa. One possible solution to avoid that would be leaving Northern Ireland out of the UK's custom zone. But this would see a solid resistance from many policymakers, especially from Democratic Unionists.

7.52am BST

The financial markets are gripped by "unexpected hope" that a Brexit deal can be reached, says Jim Reid of Deutsche Bank.

But...he also points out that we don't know exactly what Johnson and Varadkar discussed yesterday.

So far we've got no details from the U.K. side and only cautious positive soundbites from the Irish (a big improvement relative to where we've been though). However no leaked news is probably good news for now and it's remarkable that I've woken up this morning with nothing on the wires to flesh out the progress.

Sterling rallied +1.97% against the dollar yesterday - the most in 7 months. In terms of next steps, the UK's Brexit Secretary Stephen Barclay will be meeting the EU's chief negotiator Michel Barnier today as the two sides look to move closer towards a deal ahead of Thursday's EU Council summit.

7.50am BST

Today's UK newspapers are dominated by the apparent Brexit breakthrough between the UK and Ireland yesterday. My colleague Kate Lyons has rounded them up:

7.35am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

And we keep on going...
GBP/$ having its best day since March on hopes a Brexit deal may be a possibility by Oct 31 deadline pic.twitter.com/Rq79l4Baco

Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.

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