London - European shares drifted lower
on Wednesday, while sterling battled back from a one-week low
and regained its composure amid the drama of Britain formally
triggering its exit process from the European Union.
The pound was the biggest loser on major currency markets as
European trading got underway. But it clawed back almost all its
losses after a draft EU document made no mention of the
possibility that the two sides will fail to strike a deal.
"What is priced in at the moment is a hard Brexit, so if
there is something being constructed by the EU that is a little
softer, that would send sterling sharply higher," said Mizuho's
head of hedge fund FX sales, Neil Jones.
Prime Minister Theresa May will notify EU Council President
Donald Tusk in a letter that Britain really is quitting the bloc
it joined in 1973, pitching the United Kingdom into the unknown
and triggering years of uncertain negotiations.
The start of the formal Brexit process comes a day after the
Scottish Parliament backed a bid to hold a second independence
referendum that could break up the UK, adding another layer of
uncertainty for investors to navigate.
The longer term picture may be a more volatile one.
"Sterling will be incredibly sensitive to negotiations and
will offer a clear gauge of how things are panning out. We could
see it move lower still if negotiations take a sour turn - $1.10
is feasible," said Neil Wilson, senior markets analyst at ETX
Capital.
Sterling hit a one-week low of $1.2378 earlier, but
was last trading down 0.1 percent against the dollar at $1.2432.
Elsewhere in currencies, the euro was down a fifth of one
percent at $1.0793 and the dollar was down slightly
against the yen at 111 yen.
The dollar bounced from 4-month lows as a top Federal
Reserve official talked of more rate hikes to come. Fed Vice
Chairman Stanley Fischer, one of the more influential
policymakers with markets, said two more rate increases this
year seemed "about right".
Wall Street recovery
In stocks the leading index of 300 European shares gave up
all its early gains to trade down 0.1 percent at 1,486
points, while Germany's DAX halved its gains to trade up 0.3
percent.
Britain's FTSE 100 fell 0.2 percent as sterling
bounced back from its one-week low.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.3 percent and back toward recent 21-month
peaks, while Japan's Nikkei added 0.1 percent.
The Dow Jones snapped an eight-day losing streak on Tuesday,
its longest run of losses since 2011, in part as a survey showed
consumer confidence surged to a more than 16-year high.
S&P 500 futures pointed to a flat open on Wall
Street.
"Economic fundamentals still remain exceedingly sound here
in 2017 and you do not need Trump's pro-growth fiscal agenda for
this to be one of the best years for growth since the recovery
started," argued Tom Porcelli, chief U.S. economist at RBC
Capital Markets.
"We still think tax reform happens, but you are better off
thinking about the timing as an end of year event at best."
In commodity markets, oil prices gained after a severe
disruption to Libyan oil supplies and as officials suggested the
Organization of the Petroleum Exporting Countries and other
producers could extend output cuts to the end of the year.
US crude CLc1 added 0.4 percent to $48.57 a barrel, while
Brent rose 0.5 percent to $51.57.
Spot gold was little changed at $1 251 an ounce.