European shares drifted lower on
Wednesday, while sterling battled back from a one-week low and regained its
composure amid the drama of Britain formally triggering its exit process from
the European Union.
The pound was the biggest loser
on major currency markets as European trading got underway. But it clawed back
almost all its losses after a draft EU document made no mention of the
possibility that the two sides will fail to strike a deal.
"What is priced in at the
moment is a hard Brexit, so if there is something being constructed by the EU
that is a little softer, that would send sterling sharply higher," said
Mizuho's head of hedge fund FX sales, Neil Jones.
Prime Minister Theresa May will
notify EU Council President Donald Tusk in a letter that Britain really is
quitting the bloc it joined in 1973, pitching the United Kingdom into the
unknown and triggering years of uncertain negotiations.
The start of the formal Brexit
process comes a day after the Scottish Parliament backed a bid to hold a second
independence referendum that could break up the UK, adding another layer of
uncertainty for investors to navigate.
The longer term picture may be a
more volatile one.
"Sterling will be incredibly
sensitive to negotiations and will offer a clear gauge of how things are
panning out. We could see it move lower still if negotiations take a sour turn
- $1.10 is feasible," said Neil Wilson, senior markets analyst at ETX
Sterling hit a one-week low of
$1.2378 earlier, but was last trading down 0.1 percent against the dollar
Elsewhere in currencies, the euro
was down a fifth of one percent at $1.0793 and the dollar was down
slightly against the yen at 111 yen.
The dollar bounced from 4-month
lows as a top Federal Reserve official talked of more rate hikes to come. Fed
Vice Chairman Stanley Fischer, one of the more influential policymakers with
markets, said two more rate increases this year seemed "about right".
WALL STREET RECOVERY
In stocks the leading index of
300 European shares gave up all its early gains to trade down 0.1 percent at
1,486 points, while Germany's DAX halved its gains to trade up 0.3 percent.
Britain's FTSE 100 fell 0.2
percent as sterling bounced back from its one-week low.
MSCI's broadest index of
Asia-Pacific shares outside Japan rose 0.3 percent and back toward recent
21-month peaks, while Japan's Nikkei added 0.1 percent.
The Dow Jones snapped an
eight-day losing streak on Tuesday, its longest run of losses since 2011, in
part as a survey showed consumer confidence surged to a more than 16-year high.
S&P 500 futures ESc1 pointed
to a flat open on Wall Street.
"Economic fundamentals still
remain exceedingly sound here in 2017 and you do not need Trump's pro-growth
fiscal agenda for this to be one of the best years for growth since the
recovery started," argued Tom Porcelli, chief U.S. economist at RBC
"We still think tax reform
happens, but you are better off thinking about the timing as an end of year
event at best."
In commodity markets, oil prices
gained after a severe disruption to Libyan oil supplies and as officials
suggested the Organization of the Petroleum Exporting Countries and other
producers could extend output cuts to the end of the year. [O/R]
U.S. crude added 0.4 percent to
$48.57 a barrel, while Brent rose 0.5 percent to $51.57. Spot gold was little
changed at $1,251 an ounce.