Oct 11, 2019: The British pound surged on Friday as traders detected signs that London and Brussels could still win the race against time to avoid a no-deal Brexit.
Global stock markets meanwhile powered ahead, boosted by hopes that Washington and Beijing are getting closer to ending their trade war.
“Global stocks continued to rally on the back of optimism the US and China will reach an agreement of some sort to prevent any further escalation in their bitter trade war,” said Fawad Razaqzada at Forex.com.
Gold fell as did the dollar, making it a “risk-on” day overall, he said.
Oil prices saw sharp rises, sparked by an Iranian tanker being hit by suspected missile strikes off the coast of Saudi Arabia.
– Pound on a roll –
The pound had a rollercoaster day, at first falling after EU Council President Donald Tusk said Britain had not come up with a workable Brexit deal, seemingly pouring cold water on the previous day's optimism sparked by a joint British-Irish statement about a “pathway” forward.
But then the currency took off when EU member states gave Brexit negotiator Michel Barnier the go-ahead for more intense talks with Britain over the weekend, just days before a key European summit.
David Cheetham at XTB said the latest developments may “well be a pivotal turning point in negotiations” but more “clarity” was needed.
Analyst Razaqzada at Forex.com also seemed to question the wisdom of buying into the British currency with such abandon despite lacking all the facts.
“Traders are evidently happy to be buying the rumours and will be asking questions later,” he said.
The rally inflicted heavy losses on investors having bet on a further fall in the pound, as they were caught in a “short squeeze”, analysts said.
– 'Huge meeting' –
If a Brexit deal suddenly appeared on the cards against all the previously assumed odds, a similar scenario also seemed plausible Friday for a US-China trade agreement — which has so far appeared just as elusive.
President Donald Trump said Chinese and American officials were working toward meaningful progress in trade talks.
This fed a stock rally, with Wall Street erasing the week's losses as investors bet on at least a partial pact, and European stocks well up at the close.
“Trump welcomes Chinese Vice Premier Liu He to the White House after productive talks with his trade team on Thursday in what could be the first step towards de-escalating the trade war that has plagued the global economy for the last year,” said Craig Erlam at OANDA, calling the encounter a “huge meeting”.
– 'Fuel on fire' –
In commodities, oil was catapulted higher after an Iranian tanker was hit by suspected missile strikes off the coast of Saudi Arabia, sparking fresh conflict fears one month after attacks on Saudi oil facilities that were blamed by Washington on Tehran.
“This clearly puts fuel on the Middle East fire,” SEB commodities analyst Bjarne Schieldrop told AFP.
“After the attack on Saudi a few weeks ago, it's not a matter of if we get new comparable events — but when, and how much.”
On September 14 attacks on Aramco plants in Abqaiq and Khurais initially halved the kingdom's crude output and set oil markets alight.
Friday's blasts could escalate quickly and spell more global economic turmoil, according to Nordea Markets analyst Thina Margrethe Saltvedt. “The risk premium is rising,” she told AFP.
– Key figures around 1540 GMT –
- London – FTSE 100: UP 0.8 percent at 7,247.08 points (close)
- Paris – CAC 40: UP 1.7 percent at 5,665.48 (close)
- Frankfurt – DAX 30: UP 2.9 percent at 12,511.65 (close)
- EURO STOXX 50: UP 2.2 percent at 3,569.92
- New York – Dow: UP 1.8 percent at 26,971.23
- Tokyo – Nikkei 225: UP 1.2 percent at 21,798.87 (close)
- Hong Kong – Hang Seng: UP 2.3 percent at 26,308.44 (close)
- Shanghai – Composite: UP 0.9 percent at 2,973.66 (close)
- Euro/dollar: UP at $1.1055 from $1.1005 at 2100 GMT
- Pound/dollar: UP at $1.2683 from $1.2443
- Euro/pound: DOWN at 87.10 pence from 88.45 pence
- Dollar/yen: UP at 108.59 yen from 107.98 yen
- Brent North Sea crude: UP 2.0 percent at $60.23 per barrel
- West Texas Intermediate: UP 1.5 percent at $54.34