Most European and US markets slumped yesterday after an upbeat start to the day was eroded by news the US Congress is moving ahead with impeachment efforts against President Donald Trump.
House Speaker Nancy Pelosi ordered articles of impeachment to be drawn up that could lead to a trial in the Senate, saying Trump’s abuse of power for political benefit “leaves us no choice but to act”.
Trading had been in positive territory on renewed hopes for China-US trade talks after a report said a deal could be finalised by the end of next week.
British stocks were nonetheless held back also by a rise in the pound’s value against other major currencies, which limits profits at companies that earn substantial amounts of their revenues in US dollars.
London’s FTSE 100 lost 0.7% to 7,137.85 points, Frankfurt’s DAX 30 was down 0.7% to 13,054.80 and Paris’s CAC 40 was flat at 5,801.55 points at the close yesterday.
The pound was in demand as polls suggest that Prime Minister Boris Johnson’s Conservatives would win a majority at next week’s general election, giving him a mandate to push through his Brexit agreement and avert a no-deal divorce.
Sterling is up more than 1.5% this week to the dollar, as it appears likely that the Conservative Party will win a majority in next week’s election and end 3-1/2 years of Brexit-related uncertainty by taking Britain out of the European Union.
That has given a boost to the euro, which has also benefited from recent better-than-expected data. It has gained 0.6% against the dollar this week.
The euro firmed marginally against the dollar yesterday to $1.1086 while the greenback edged down 0.14% against a basket of currencies to 97.517.
The British pound traded at a new seven-month high of $1.3146 and against the euro too it extended gains to a new 2-1/2-year high of 84.31 pence
The question now is whether the US Federal Reserve could turn dovish if the weak data flow continues. No Fed rate rise is priced in until next September but traders will be on the watch for the tone of its statement.
“For markets, anything other than a Conservative victory would be deemed as a negative, with a hung parliament leaving Johnson scrambling to form a government with parties which have rejected the deal Boris is pushing,” noted Joshua Mahony, a market analyst at the online trading group IG.
The latest developments appeared to overtake the markets’ roller-coaster reactions to reported developments in the Chinese-US trade saga.
They also countered any positive effects from news that the US trade deficit in October unexpectedly fell to its lowest level in more than a year as consumers purchased many fewer autos and consumer goods.
In commodity markets, world oil prices rose further after surging Wednesday on reports that Opec and other major producers were ready to announce fresh output cuts.
Faced with slowing global economic growth and abundant reserves putting pressure on oil prices, Opec and its partners could seek to deepen output cuts when they meet in Vienna on Thursday and Friday.
The cuts of 1.2mn barrels per day from October 2018 levels were originally fixed in December last year and were already extended at Opec’s last meeting in July.
Some observers expected the cuts to remain in place possibly until the end of 2020.
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