Asian shares took off on Wednesday and sterling held near six-month highs as Britain and the EU made headway on a Brexit deal ahead of a leaders’ summit though it remained unclear if London could avoid postponing its scheduled departure on Oct. 31.
A woman holding a sunshade walks past in front of an electric screen showing Japan's Nikkei share average outside a brokerage in Tokyo, Japan, August 5, 2019. REUTERS/Issei Kato
Officials and diplomats involved in negotiations over the acrimonious divorce between the world’s fifth-largest economy and its biggest trading bloc said that differences over the terms of the split had narrowed significantly.
The news lit a fire under European and U.S. equities, which jumped about 1% on Tuesday. The British pound GBP=D3 rocketed to $1.28, a level not seen since May 21. It gave back some of those gains on Wednesday to be last at $1.2759.
The pound has strengthened nearly 5% over the past week as investors rushed to reprice the prospect of a last-minute Brexit deal before the end-October deadline.
The positive sentiment extended on Wednesday with MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lifting 0.3%.
Japan's Nikkei .N225 jumped 1.7% while Australian shares added 0.9% and South Korea's KOSPI index .KS11 climbed 0.7%.
Stronger-than-expected earnings from major U.S. banks JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) further boosted sentiment even as the International Monetary Fund downgraded its 2019 global growth forecast for a fifth time.
“Equities rallied everywhere supported by another set of Brexit headlines and as earnings season started in the United States,” JPMorgan analysts wrote in a client note.
“Officials cautioned that talks haven’t finished yet and there could yet be problems in hitting the deadline of midnight Tuesday,” they added.
The EU’s chief Brexit negotiator Michael Barnier had been demanding a legal text of any agreement by midnight U.K. time. However, the talks were still going on between UK Brexit negotiator David Frost and the EU’s executive European Commission past midnight in Brussels.
The EU will determine whether a deal is fit to be put to Thursday’s leaders’ summit for consideration.
“Watching the UK news channels last night, the arithmetic for achieving said approval is challenging to say the least,” analysts at National Australia Bank wrote in a note.