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London - The pound slid at least 0.6% versus all of its major peers on concern Britain may face a so-called hard Brexit after Prime Minister Theresa May pledged to start pulling the UK out of the European Union by March.
Contagion to other global markets was limited, leaving bonds little changed and equities rising with oil.
Sterling dropped to its weakest level in almost three months versus the dollar, helping support British shares. Crude oil rose for a fourth day, boosting the currencies of commodity-exporting nations, with Russia’s ruble climbing to the highest in 11 months.
Saudi Arabian stocks slipped again after falling to a five-year low on
Sunday as the country wrestles with a budget shortfall. Henderson surged the most in more than seven years after it agreed to buy
Janus Capital.
The pound has sunk about 13% this year, making it the worst-performing major currency, on concern Britain’s decision to quit the EU will force it out of the single market, hurting exports and denting financial services.
With negotiations on the terms of the exit yet to start, business groups and foreign capitals are grasping for more detail. May told her Conservative Party’s annual conference in Birmingham, central England, that she’ll invoke Article 50 of the EU’s Lisbon Treaty - the formal trigger for two years of talks - by the end of March.
“Yesterday the impression participants got was that the pendulum has swung towards a hard Brexit,” said Neil Jones, head of hedge fund sales at Mizuho Bank in London. “Hard Brexit is a sell for the pound. I know the government line is that they don’t see a need to differentiate between hard and soft Brexit, but the market certainly does.”
The pound dropped 0.8% to $1.2865 at 14:47, after touching the weakest level since July 6. Sterling tumbled the most on record to a more than 30-year low in the wake of the June vote in favor of Brexit. The FTSE 100 Index added 1.2% and the yield on 10-year gilts was little changed at 0.74%. Sterling stayed lower after a gauge of UK manufacturing unexpectedly increased.
Currencies
The rand led gains among currencies of raw materials producers, adding 0.9% to R13.5886/$. Russia’s ruble and Mexico’s peso followed, both appreciating 0.8% against the dollar.
Colombia’s peso is likely to be sold off, according to Goldman Sachs, after a peace accord between the government and Marxist guerrillas was unexpectedly rejected in a referendum on Sunday, six days after President Juan Manuel Santos signed the deal. The country’s bonds fell, sending the yield on $1.5bn of notes due in 2026 up 12 basis points to 3.32%.
“The rejection of the proposed peace deal was not expected nor discounted by the market,” Alberto Ramos, a Goldman Sachs analyst, wrote in a report. “We expect financial markets to react negatively on Monday with the COP and local interest rates likely to sell off,” he wrote, referring to the peso.
Commodities
West Texas Intermediate crude climbed 0.6% to $48.54 a barrel, rising for a fourth consecutive day. Brent rose 0.6% to $50.49 a barrel after rising 6.9% last week as the Organization of Petroleum Exporting Countries’ members forged a preliminary agreement to reduce output.
Still, OPEC’s third-largest member Iran wants to increase exports to 2.35 million barrels a day in the coming months, state news agency IRNA reported. The number of rigs targeting crude in the US rose for a fifth consecutive week, Baker Hughes said on Friday.
The LME Index - a measure of copper, aluminum, nickel, tin, zinc and lead prices on the London Metal Exchange - entered a bull market last week and climbed to a 14-month high.
Prices fell on Monday, with copper losing 0.7% to $4,831.50 an ounce and lead down 2%. Nickel plunged 3.6% after earlier media reports that the Philippines may not suspend operations at all of the mines that were last week cited for environmental violations.
Stocks
The Stoxx Europe 600 Index added 0.2%, with the volume of shares changing hands about 19% lower than the 30-day average. Futures on the S&P 500 Index were little changed after the gauge ended last week within 1% of the record high it reached in August. The MSCI All Country World Index increased 0.2%.
The weakening of the pound pushed more than 80 of the FTSE 100’s shares higher, with Royal Dutch Shell gaining 2.9%. The index was headed for its highest close since May 2015 and was about 2% away from the all-time high reached last year. The FTSE 250 Index of mid-cap companies and the FTSE Small Cap excluding investment trusts index also increased.
Shares of European financial services providers advanced. Henderson jumped 14% after saying it will combine with the US’s Janus Capital. Peers Aberdeen Asset Management Plc and Jupiter Fund Management climbed more than 5.1%.
Temenos surged 9.5% after the Swiss financial-software provider said a major European lender has picked one of its programs for retail, commercial and corporate banking.
While Deutsche Bank didn’t trade in Germany, the stock was little changed in early US business, after rebounding on Friday on a report that it was nearing a $5.4bn settlement with the US Department of Justice, less than the previously requested $14bn.
Twitter climbed 3.3% after a person familiar with the matter said Google, the largest subsidiary of Alphabet, is working with financial adviser Lazard to consider a potential bid for the social-media company.
The MSCI Emerging Markets Index rose 0.8%, extending its 8.3% advance in the third quarter, the biggest gain for the period since 2012. Saudi Arabia’s Tadawul All Share Index fell 0.3%. The central bank on Sunday directed local lenders to reschedule the consumer loans of clients affected by a decision to cut government salaries and bonuses as part of efforts to curb spending.
The Hang Seng China Enterprises Index advanced 1.1%. China’s official factory gauge stayed at 50.4 in September, the highest level in almost two years for a second month and its services index increased to 53.7 from 53.5 in August, the National Bureau of Statistics said on October 1.
Egyptian stocks jumped 3%, the most in more than two months and second-biggest gain worldwide, on speculation a devaluation of the currency as soon as this week will boost investment and shore up the economy.
Markets in China, Germany and South Korea were shut for holidays on Monday.
Bonds
Treasury 10-year note yields were at 1.61% after slipping two basis points last week. Japan’s was at minus 0.078% and Germany’s at minus 0.11%.
US economic reports on construction spending and manufacturing are due on Monday, while September’s nonfarm payrolls report is scheduled for Friday.
Italian government bonds declined after the latest polls showed that the constitutional referendum, on which Prime Minister Matteo Renzi’s political fate hangs, may be too close to call. The nation’s 10-year bonds underperformed their Spanish peers, with the yield spread between the two reaching its widest in almost two years.
The survey “is certainly weighing on Italy,” said Antoine Bouvet, a London-based rates strategist at Mizuho International. “There is also the fact that the perception of the market is that Italy has a higher sensitivity to problems in the financial sector in Europe in general, so that is also harming the country. Those are the two factors behind Italy’s underperformance.”
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