ASIAN markets retreated on Wednesday after two days of gains but the pound enjoyed a slight uptick after the previous day’s sharp losses as British officials looked to ease concerns about the possible impact of a no-deal Brexit.
The sterling saw wild fluctuations on Tuesday as it hit a near two-year high on news Prime Minister Theresa May had won a last-minute revision to her agreement with the EU.
But it then tanked to a three-week low as it was tossed out by members of parliament at Westminster later in the day.
The decision means lawmakers will vote on Wednesday on whether to leave the EU on March 29 without an economic agreement – which is expected to fail – then on Thursday on whether to extend the deadline.
In a bid to ease concerns about the financial impact on the economy if members of parliament vote later in the day to leave with no agreement, officials in London said they will slash tariffs on 87 per cent of imports, and will not apply customs checks on the border with Ireland.
However, there remains a lot of uncertainty, with some observers suggesting the latest developments put the country a step closer to another referendum, while others say it could make a divorce without an agreement more likely.
“My tuppence is that parliament has, in their own mind, seized control of the Brexit process and will duly ask and likely get an extension to the 29 March exit date,” said Oanda senior market analyst Jeffrey Halley.
“The breathing space granted will be used by whomever to renegotiate a more palatable Brexit deal for the UK. Except nobody has asked the Europeans yet. A short-term gain may yet belie long-term pain.”
Slope or cliff?
Michael Hewson, chief market analyst at CMC Markets in Britain, warned there was no guarantee a delay would automatically be allowed.
“Voting against a no-deal Brexit doesn’t of itself remove the option of no deal, as this is already currently written in statute, and the EU could well decide to play hardball and take the view that the only options available are the current deal, or to revoke article 50,” he said in a note.
The news from London added to selling pressure on Asian equity markets, which had enjoyed a bounce on Monday and Tuesday from last week’s battering, with investors still on edge over the state of the global economy.
Tokyo ended one per cent lower, while Shanghai fell 1.1 per cent and Hong Kong lost 0.4 per cent.
Seoul shed 0.4 per cent, Sydney gave up 0.2 per cent and Singapore was off 0.8 per cent. Wellington and Manila also retreated, though Taipei, Mumbai and Jakarta were slightly higher.
With very little news coming out of Beijing and Washington regarding the trade talks, investors are moving to the sidelines until there is something concrete to buy on.
“Until the world’s two largest economies conclude an agreement . . . it will be difficult to gauge a clearer picture of the global economy in 2019,” added Halley.
“The outcome of the trade talks – and perhaps the US-eurozone will likely follow – will dictate whether we will gently roll down the slope or off the edge of the cliff.”
In early trade, London fell 0.1 per cent, Paris edged up 0.1 per cent and Frankfurt fell 0.2 per cent.