Europe’s Brexit deal cheers dampened by familiar snags

LONDON: Confirmation of a new Brexit deal sent sterling to a five-month high on Thursday and hoisted European stocks to a year-and-a-half peak, before familiar doubts about British parliamentary support for the agreement hauled them back.

While the British government and the European Union may have agreed a deal, there is not a clear road ahead, which reduces the chances of British Prime Minister Boris Johnson winning parliamentary ratification for the deal.

Sterling, which has been the key gauge of Brexit sentiment all along, jumped as much as a 1% against the dollar, putting it on course for its best six-day gain in more than 30 years before the doubts and grumbles set it.

However market optimism faltered when the DUP said it could not support the agreement, torpedoing any hopes of a smooth passage through parliament.

Having ran up as far as $1.2988 sterling started to splutter badly and was back down under $1.28 by the time US FX trading had started to gain momentum.

It also dropped back from a May high of 0.86 pence against the euro though the held on to a near- two-month high against the dollar of $1.1139 in its sixth day of gains in the past seven.

“Clearly we have been here before,” said Societe Generale’s Kit Juckes, referring to a divorce deal struck by former British Prime Minister Theresa May which was repeatedly rejected by lawmakers. “But if this were to pass I think we would see euro-sterling the other side of 85 (pence per euro).

London’s heavyweight FTSE jumped 0.8% as the pound slid but the pan-European STOXX 600 lost most of its gains. UK Gilts, German Bunds, the Swiss franc, gold and most other safe havens also rebounded after selling off.

It’s not all about Brexit.

Wall Street was expected to reopen higher as a strong start to corporate earnings, thanks to Netflix and Morgan Stanley, helped offset disappointment over weekly jobless data.

Emerging-market stocks also gained for a sixth day — their longest winning streak since early April — after US

Treasury Secretary Steven Mnuchin said US and Chinese trade negotiators were nailing down a Phase 1 trade deal text for their presidents to sign next month.

But US retail sales fell for the first time in seven months, suggesting manufacturing-led weakness was spreading to the broader economy. US consumption has been one of few bright spots in the global economy, so the data fanned concerns the trade war would ultimately tip the world into recession.

“While the US suspended a hike in tariffs, it hasn’t gone as far as scrapping the tariffs altogether, so it is hard to expect a quick pickup in the economy,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.