Asian shares, sterling up on pause in Brexit, trade fears

By Andrew Galbraith

SHANGHAI (Reuters) – Asian shares and the pound moved higher on Thursday as investors breathed a sigh of relief after British Prime Minister Theresa May survived a no-confidence vote, and as China appeared to be taking more steps to meet U.S. demands to open its markets.

Sterling rallied from a 20-month low after the vote, and was holding onto gains early in the Asian trading day, trading at $1.2629.

Any respite for sterling was expected to be brief, however, as May appeared no closer to getting her EU divorce agreement through parliament, raising the risk of a chaotic exit in March.

“The fact remains that the EU is highly unlikely to offer the reassurance MPs are demanding on the Irish backstop,” analysts at ING said, adding there was a risk that a parliamentary vote on the Brexit deal will not take place until later in the first quarter of 2019.

“In the meantime, the lack of clarity and elevated risk of ‘no deal’ is set to see economic activity slow further,” they said. ING expects UK growth to halve in the fourth quarter from the third.

The euro was also higher, up 0.04 percent at $1.1375 after Italy’s government offered to lower its deficit target next year to 2.04 percent of gross domestic product, below the 2.4 percent level that the European Commission had rejected as too high.

The European Central Bank is all but certain to formally end its lavish bond purchase scheme on Thursday but will take an increasingly dim view on growth, raising the odds that its next step in removing stimulus will be delayed.

The dollar index, which tracks the greenback against a basket of six major rivals, edged down to 97.020. The dollar rose a hair against Japan’s currency, buying 113.30 yen.

In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent in early Asian trade after U.S. stocks finished the previous session higher, amid cautious optimism for progress in Chinese-U.S. trade talks.