EUROPE MARKETS: Europe's Key Stock Index Takes Cautious Step Higher With Brexit 'moment Of Truth In Focus'
October 17 2018 - 5:48AM
Dow Jones News
By Mark DeCambre, MarketWatch
Europe's main equity benchmark rose tepidly on Wednesday,
extending a rally in the pervious session that marked the best day
since early April, but hand-wringing around faltering negotiations
between the European Union and the U.K. over a trade deal to exit
from the trade bloc continued.
What are markets doing?
The pan-European Stoxx Europe 600 gained less than 0.1% to
365.07
(http://www.marketwatch.com/story/european-stocks-see-bounce-but-on-track-for-big-weekly-declines-2018-10-12),
a day after notching its best daily climb since April 5, according
to FactSet data. Meanwhile, the U.K.'s FTSE 100 rose 0.3% to
7,077.50.
Germany's DAX 30 slipped 0.3% to 11,742.42, while France's CAC
40 advanced by 0.2% to reach 5,185.57, following its best day since
early April.
Italy's FTSE MIB Italy index was trading flat at 19,723.21,
after registering its best daily gain since Sept. 10 when the index
jumped 2.3%.
The euro was off at $1.1566, compared with $1.1577 late Tuesday
in New York. The pound was last changing hands at $1.3145, down
from $1.3185 late Tuesday.
What is driving the market?
European investors are mostly focused on U.K. Prime Minister
Theresa May's "moment of truth
(https://www.politico.eu/article/brexit-deal-moment-of-truth-postponed-theresa-may-donald-tusk-dominic-raab-michel-barnier/),"
as European Council President Donald Tusk has described a meeting
in Brussels later today to try to break an impasse in Britain's
talks to extricate itself from the EU with a trade agreement in
hand.
A so-called no-deal scenario
(http://www.marketwatch.com/story/with-no-deal-brexit-risk-on-the-rise-analysts-see-uncertain-path-for-pound-2018-10-16)
is looking increasingly likely after Tusk on Tuesday said he
harbored "no grounds for optimism
(https://www.bbc.co.uk/news/uk-politics-45871254)" which could roil
eurozone markets and produce sharp swings in the British pound.
The biggest snag in EU-U.K. discussions may center on the issue
of trade between the Republic of Ireland and the U.K.'s Northern
Ireland. The U.K. is slated to leave the EU on March 29 and talks
are expected to be completed by mid-November.
Separately, a reading of U.K. inflation showed an annual rise of
2.4% last month, the Office for National Statistics said, a lower
rate than the 2.7% recorded a month earlier and the 2.5% predicted
by economists polled by The Wall Street Journal. However, wage
growth hit 3.1% in the three months through August, and wholesale
prices. In all, the readings seemed unlikely to hamper the Bank of
England from lifting rates at least two more times over the next
two years.
European investors also are following developments in Italy's
government, which Monday drafted a budget law for next year
(http://www.marketwatch.com/story/italys-government-oks-draft-budget-that-would-widen-deficit-2018-10-15),
confirming a set of measures that could lead to a fast-rising
deficit but heightens a conflict with the European Union over the
size and scope of its budget deficit.
The antiestablishment 5 Star Movement and the far-right League
have rattled financial markets over the potential for a clash
between Italy's government and the EU, which could prove disruptive
to the integrity of the bloc.
The full draft budget law will be sent to the Italian parliament
by Saturday. Lawmakers will need to approve it by the end of the
year.
What are strategists saying?
"Over the next few days investors will be keeping a very close
eye on the EU summit which could provide some direction on Brexit.
With a deadlock on the Northern Irish border issue seen as a major
obstacle in Brexit talks, there is little hope for a breakthrough
at the EU summit," wrote Lukman Otunuga, research analyst at FXTM,
in a Wednesday note.
"If the summit concludes with no real progress made on
[negotiations], this simply raises the risk of a no-deal Brexit
outcome. Given the pound is extremely sensitive to Brexit
headlines, such a scenario could send the currency collapsing like
a house of cards," he concluded.
(END) Dow Jones Newswires
October 17, 2018 05:33 ET (09:33 GMT)
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