The pound clawed back earlier losses yesterday in Asia after Boris Johnson’s failure to push through his Brexit deal fuelled fresh uncertainty, while regional equities ticked lower as investors took a step back after recent gains.
With everything quiet on the China-US trade talks, attention was on Westminster where Britain’s prime minister finally got MPs to agree to his EU divorce pact, but minutes later lost a vote on a truncated debate that would have passed it in just three days.
The news means Johnson is unlikely to fulfil his pledge of leaving the European Union by the October 31 deadline, and raises the possibility of his calling a general election before the end of the year.
EU chiefs are now expected to recommend another extension to the withdrawal date, which analysts said the PM would blame on opposition lawmakers in the event of a national poll.
The prospect of another delay hit sterling, which briefly fell as low as $1.2841 yesterday before bouncing back as European business started.
The unit had earlier this week broken $1.30 for the first time in five months on hopes of averting a painful no-deal divorce.
It was also lower against the euro.
“Getting a revised withdrawal agreement to this point and winning with a convincing margin... is an extraordinary achievement,” said Stephen Innes, senior market analyst at AxiTrader.
“But with parliament rejecting PM Johnson’s truncated timetable in favour of more time to debate the bill, it now means members will give the statute the fine-tooth comb treatment, opening it to more criticism suggesting it could be knocked down later.”
However, one observer pointed out that remarks from Johnson that he would drag Britain out of the EU with the deal come what may could be significant.
“This could be an important, indeed key, shift in the government’s position as it may indicate a willingness to extend and then seek to get the bill through Parliament,” said Neil Wilson at Markets.com.
“My initial thoughts are that the government will let the EU offer the extension to get the bill through, and (Johnson) can square the circle later with amendments etcetera.”
But he added that “the permutations remain nearly endless... Uncertainty prevails, but parliament has backed a deal and that feels like a key moment”.
The news weighed on US markets, with all three main indexes ending down, and the losses seeped through to Asia. Shanghai slipped 0.4% to 2,941.62 and Hong Kong was down 0.8% to 26,566.73, with traders keeping tabs on reactions to a Financial Times report saying China was drawing up a plan to remove the city’s beleaguered chief executive after nearly five months of pro-democracy unrest.
Singapore fell 0.6% and Seoul was off 0.4%, while Taipei and Manila and Jakarta were also in the red.
Wellington tumbled more than 2%, with energy firms battered by worries about electricity prices after Rio Tinto said it was considering closing a power-guzzling aluminium smelter, potentially leaving the country awash with excess capacity. Also, major construction firm Fletcher Building fell as a massive fire hit a US$450mn convention centre it is building in the middle of Auckland.
But Tokyo edged up 0.3% to 22,625.38, while Mumbai and Jakarta also rose while Sydney was flat.