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Sterling skids on Brexit anxiety; investors hope for Trump clarity

By Wayne Cole

REUTERS

 

People are reflected in a display showing the Nikkei average (top in L) and the NASDAQ average of the U.S outside a brokerage in Tokyo, Japan, November 7, 2016. REUTERS/Kim Kyung-Hoon

 

SYDNEY (Reuters) - Sterling slid to three-month lows in Asia on Monday with investors again spooked by concerns over Britain's exit from the European Union, while U.S. policy uncertainty lingered ahead of President-elect Donald Trump's inauguration.

 

Regional share markets were hesitant with MSCI's broadest index of Asia-Pacific shares outside Japan up just 0.09 percent. Japan's Nikkei eased 0.3 percent, while Australia added 0.5 percent.

 

All the early action was in currencies where the pound sank as low as $1.1983, depths not seen since the flash crash of October, having finished around $1.2175 in New York on Friday. It was last down 1.1 percent at $1.2044.

 

Dealers said the market was reacting in part to a report in the Sunday Times that U.K. Prime Minister Theresa May will use a speech on Tuesday to signal plans for a "hard Brexit", quitting the EU's single market to regain control of Britain's borders.

 

Investors have been worried such a decisive break from the single market would hurt British exports and drive foreign investment out of the country.

 

"It is impossible to say by how much a hard Brexit could weaken GBP, but we do not believe that a further 5-10 percent depreciation should be regarded as an extreme scenario when set aside the UK's high dependence on foreign capital," wrote analysts at JPMorgan in a note.

 

The flight from sterling benefited the safe-haven Japanese yen, with the pound down 1.3 percent to 137.57 yen while the U.S. dollar dipped to 114.24.

 

Trading was erratic with currencies gyrating on very little volume. The dollar edged up 0.2 percent to 101.390 on a basket of currencies, while the euro pared initial losses to stand at $1.0632.

 

WAITING ON REFLATION

 

The dollar index put in its worst weekly performance in more than two months last week as investors reconsidered the whole "reflation" trade - that Trump's promises of debt-funded fiscal spending and lower taxes would stoke inflation and drive the Federal Reserve to raise interest rates faster.

 

Fed Chair Janet Yellen will have an opportunity to lay out her thinking with speeches on monetary policy on both Wednesday and Thursday this week.

 

All eyes will then be on Trump's inauguration on Friday for any clarity on his economic plans.

 

"The market is showing greater reluctance to push on with reflation-type trades without more details of proposed fiscal spending plans and the economic data to back it up," said analysts at ANZ in a research note.

 

"It looks as though more than just reasonable data will be needed to see yields and the dollar push higher again. Some decent positive surprises may be necessary for the market to gain conviction."

 

Asian markets are also waiting anxiously to see if Trump makes good on a campaign pledge to brand Beijing a currency manipulator on his first day in office, and starts to follow up on a threat to slap high tariffs on Chinese goods.

 

Analysts fret that the specter of deteriorating U.S.-China trade and political ties is likely to weigh on the confidence of exporters and investors worldwide.

 

Wall Street ended last week mixed, with the Dow off slightly but the Nasdaq at a record high.

 

Sentiment this week could be driven by results from the major banks with Morgan Stanley, Citibank and Bank of New York Mellon among those reporting.

 

In commodity markets, oil prices inched higher after shedding around 3 percent last week. Brent crude was up 9 cents at $55.54 a barrel, while U.S. crude rose 7 cents to $52.44.

 

Spot gold added 0.5 percent to $1,202.80 an ounce.

 

(Editing by Peter Cooney & Shri Navaratnam)

 

-- © Copyright Reuters 2017-01-16

[Pib]

Quote

 

Dealers said the market was reacting in part to a report in the Sunday Times that U.K. Prime Minister Theresa May will use a speech on Tuesday to signal plans for a "hard Brexit", quitting the EU's single market to regain control of Britain's borders.

 

Investors have been worried such a decisive break from the single market would hurt British exports and drive foreign investment out of the country.

 

 

And hurt British expats....less buying power due to their money (sterling) being worth less.   Not a pretty situation.

[chiang mai]

The fall has very little to do with clarity from Trump, it's 100% about Brexit as all the UK papers will tell you - the PM is going to make a major speech on Brexit tomorrow and hard Brexit seems to be the current flavour of the day and markets don't like that.

[daveAustin]

Get ready for 40 baht, chaps, when May (closet Brexiter) gives the EU the finger proper. 

[Grouse]

Watch for the inevitable rise in FTSE100 to loud cheers from silly Brexiteers.

 

Mrs Maybe's speech will be interesting to watch in a morbid kind of way!

 

[chiang mai]

Indeed, FTSE breaks new record highs yet again, the economy must be doing OK, they will mumble.

[baboon]

What is the point of May saying anything until the plans are in place and the court case resolved? Aren't we just chasing our own tail until then?

[Pib]

Getting off the EU bandwagon is turning out to be not nearly as easy and cheap as getting on it was.

[Bannoi]

Little England should realise the days of their Empire are over.

[johng]

Little England should realise the days of their Empire are over.

Once free of the EU shackles we can rise again (hopefully maybe)

:-)

[chiang mai]

23 minutes ago, johng said:

Once free of the EU shackles we can rise again (hopefully maybe)

:-)

 

If we couldn't achieve that from inside a major trading bloc I wonder why anyone thinks we can do better being outside of it, especially since that bloc represents our doorstep, backdoor and driveway plus we've alienated ourselves from it big time.

[steve187]

5 hours ago, Pib said:

Getting off the EU bandwagon is turning out to be not nearly as easy and cheap as getting on it was.

we haven't started to dismount yet, its just the doom and gloom crowd getting their oar in. (sour losers)

But i do wish MAY would stay quiet until the end of March 

[steve187]

5 minutes ago, chiang mai said:

 

If we couldn't achieve that from inside a major trading bloc I wonder why anyone thinks we can do better being outside of it, especially since that bloc represents our doorstep, backdoor and driveway plus we've alienated ourselves from it big time.

Good

[Baerboxer]

6 hours ago, Grouse said:

Watch for the inevitable rise in FTSE100 to loud cheers from silly Brexiteers.

 

Mrs Maybe's speech will be interesting to watch in a morbid kind of way!

 

 

Indeed Grousy.

 

Which makes the blocking of her trying to unconstitutionally use the Royal Prerogative to bypass Parliamentary process even more of a priority.

 

There has to be a full debate in parliament, and a vote. Not just what the Tories broker among themselves to keep hold of power and stop their loonier members from defecting to UKIP.

 

Never have I seen such appallingly self centered looking after themselves first and fcku all others mentality than from this crop of Tories.

 

 

[Baerboxer]

1 hour ago, Bannoi said:

Little England should realise the days of their Empire are over.

 

It was called the British Empire for a reason. Ask someone to explain it to you.

[Baerboxer]

6 hours ago, baboon said:

What is the point of May saying anything until the plans are in place and the court case resolved? Aren't we just chasing our own tail until then?

 

Indeed. But like all politicians she feels the need to open gob and the need to pretend everything his her decision. Just like she says she's going to order GP's to work 8 days a week and open 8 till 8. 

 

A crap Home Secretary whose way way out of her depth. 

[chiang mai]

More likely to be using the press to her advantage for a reason which we will not know, yet.

[Khun Han]

Once the globalists realise that brexit means brexit, they will stop playing with our currency and turn their attention somewhere else.

[chiang mai]

2 minutes ago, Khun Han said:

Once the globalists realise that brexit means brexit, they will stop playing with our currency and turn their attention somewhere else.

 

Indeed, and at that point the currency will flat line and cease to fall further, the question is at what level will that happen. Later in the proceedings the currency will rise, as and when some good economic news presents itself.

[dunroaming]

It seems that May is putting a lot of faith in positive trade deals coming from the US.  Putting your trust in what Trump says is a very risky strategy.

[Grouse]

1 hour ago, steve187 said:

Good

 

Great idea having a referendum; we now know the clots are in the majority. I'm looking forward to England leaving the EU. Have to stop the embarrassment. 

[Grouse]

1 hour ago, Baerboxer said:

 

Indeed Grousy.

 

Which makes the blocking of her trying to unconstitutionally use the Royal Prerogative to bypass Parliamentary process even more of a priority.

 

There has to be a full debate in parliament, and a vote. Not just what the Tories broker among themselves to keep hold of power and stop their loonier members from defecting to UKIP.

 

Never have I seen such appallingly self centered looking after themselves first and fcku all others mentality than from this crop of Tories.

 

 

 

Of course many wealthy Tories are hedged against the collapsed pound because of the corresponding rise in FTSE. They won't suffer the effects of inflation. Boosting industry by slashing your currency is just so embarrassing. We're supposed to be a first world country. I'm starting to speak more German when I'm out and about in case people think I'm English....

[Retiredandhappyhere]

Hi Grouse.  From all your pro EU comments, I was beginning to think that you WERE German!  

 

It will be very interesting to hear your comments once the negotiations are over and you realise that it is in the EUs interests as much as the UK's to come out of this unique situation with a compromise solution in which neither party gets exactly what it wants.  In any case, it will not be many years before the principle behind Brexit will not be quite so unique, once others follow suit.

[chilli42]

Go long on Sterling.

[chiang mai]

24 minutes ago, Grouse said:

 

Of course many wealthy Tories are hedged against the collapsed pound because of the corresponding rise in FTSE. They won't suffer the effects of inflation. Boosting industry by slashing your currency is just so embarrassing. We're supposed to be a first world country. I'm starting to speak more German when I'm out and about in case people think I'm English....

 

The only people who are not hedged against a fall in the Pound it seems are Brexiteers who seem certain nirvana is just beyond the next hill, good luck with that strategy during the interim.

[happy Joe]

36 minutes ago, Retiredandhappyhere said:

Hi Grouse.  From all your pro EU comments, I was beginning to think that you WERE German!  

 

It will be very interesting to hear your comments once the negotiations are over and you realise that it is in the EUs interests as much as the UK's to come out of this unique situation with a compromise solution in which neither party gets exactly what it wants.  In any case, it will not be many years before the principle behind Brexit will not be quite so unique, once others follow suit.

 

Beautiful words ... unfortunately completely wrong.

Now the Europeans have absolutely nothing to gain from the UK. They have created a zone of peace and prosperity on principles of privileged exchange. They (us) will not abandon these foundations to please the English Atlantists, exclusively interested in the market
Today the first wealth of the former British partner is its financial industry, with s the other nations of the EU as majority customer. Since the vote Brexit, Europe has as main concern to appropriate this big cake.

So there will be no facility.

When the City will be installed in Dublin, Milan, Paris or Frankfurt it will be time to reconcile and together sing the song of inalienable fraternity. Not before.

[retarius]

1 hour ago, chilli42 said:

Go long on Sterling.

 

Good advice. It is what I am doing….I am selling my stronger currencies like the dollar and buying sterling and yen.

[Bannoi]

2 hours ago, Baerboxer said:

 

It was called the British Empire for a reason. Ask someone to explain it to you.

 

 

Speaking as an Irishman I need no lessons about the British get over it you are no longer what you thought you were. Perhaps you ned to look at your own history.

[retarius]

Some interesting views on here. The rise in the stock market is confusing some people. Entities and individuals buy stocks in the belief that either their dividends look good and/or the stock price will rise in the future enabling them to sell later at a profit. Generally stock price rises with increased company profits other things being equal. The rise in the stock market means that a lot of people are seeing a buying opportunity here and they believe that stocks plus dividends will be worth more in the future than they are now. However we only see one side of the ledger. There maybe be many people who are shorting the market expecting it to drop. Given the rises it seems that the bulls way outnumber the beast right now. 

No one in the whole wide world knows where stocks will be tomorrow, next week, m=next month or next year. It is unknowable and anyone claiming to know is a liar or an idiot.

[dunroaming]

The problem with Trump is what he says on Monday he changes on Tuesday.  Given the level of criticism from the UK before and after the election over Trump it is somewhat surprising just how warm Trump is being.  Especially when initially he was so dismissive of Britain.  let's see how it pans out.  In the meantime his commitment to a trade deal has bolstered May's position when the talks with the EU start in earnest.