Even as Brexit uncertainty hit travel company stocks led by easyJet, a manufacturing rebound in China and hopes for U.S.-China trade boosted markets in London.
How did markets perform?
The FTSE 100 UKX, +0.64% was up nearly 1% Monday to 7,349.2, adding to Friday’s gain of 0.6%.
The pound GBPUSD, +0.5063% which dipped Friday by 0.4%, rebounded to $1.3075 Monday, a 0.3% bounce.
What’s moving the markets?
Upbeat Markit/Caixin Purchasing Managers’ Index (PMI) survey data for China provided a positive backdrop for U.S.-China trade talks. The official manufacturing figures, which came in showing a modest expansion at 50.8 versus expectations of 50 (higher than 50 indicates growth), indicated that stimulus measures helped counter some of the drag of U.S. trade tariffs. Chinese Vice Premier Liu He is due to travel to the U.S. for further talks, with officials such as Treasury Secretary Steven Mnuchin describing negotiations as “constructive”.
U.K. Prime Minister Theresa May was likely gritting her teeth in frustration as Parliament prepared for a second set of indicative votes, in the hopes of finding a consensus Brexit option. The two most popular in last week’s initial votes were for some form of customs union with the EU, and for a second referendum on whatever deal is agreed. May has steadfastly refused to guarantee she will respect the result of the vote, so if the process produces a majority for an option she refuses, and her deal—now threatening to receive its fourth airing in Parliament—remains dead, the U.K. may be hurtling toward an election.
RBC Capital Markets economics team wrote: “Our view is that any move to extend article 50 would almost certainly trigger a general election in the UK…The wrinkle, of course, is that the polls are less kind to the Conservative Party than they were recently and thus there must be a genuine risk that they would be voted out of power.”
Which stocks are active?
A partially-Brexit-fuelled half-year profit warning from budget airline EasyJet PLC EZJ, -7.68% sent shares spiraling down 8.1%, on a bad day for U.K. airline stocks. The company cited rising fuel costs and weaker customer demand which it attributed to Brexit uncertainty. Chief executive Johan Lundgren reassured however that “We are operationally well prepared for Brexit. Now that the EU Parliament has passed its air connectivity legislation and together with the UK’s confirmation that it will reciprocate, means that whatever happens, we’ll be flying as usual.”
Morgan Stanley chief economist and global head of economics Chetan Ahya saw reason for a positive outlook on the Chinese economy: “We see grounds for optimism: a cumulative stimulus of ~US$250 billion has been announced and about US$120 billion of the stimulus is direct infrastructure spending, funded by the issuance of local government bonds, which has already gotten off to a strong start in 1Q19. ”
In U.K. markets, the main beneficiaries of China optimism were miners. BHP Group PLC BHP, +2.60% rose 2.5%, Glencore PLC GLEN, +2.22% also climbed 2.5% and Rio Tinto PLC RIO, +2.48% was up 2.3%.
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