A board in Beijing shows stock prices on the Shanghai Securities Exchange. Picture: REUTERS
A board in Beijing shows stock prices on the Shanghai Securities Exchange. Picture: REUTERS

Tokyo — Asian shares took a breather on Wednesday after rallying the previous day on Chinese stimulus hopes, with investors assessing Brexit options after British legislators trounced Prime Minister Theresa May’s deal to withdraw Britain from the EU.

May’s crushing loss overnight triggered political upheaval that could lead to a disorderly exit from the EU on March 29 or even to a reversal of the 2016 decision to leave.

Investors’ short-term focus is now on a confidence vote on May’s government by legislators later in the day.

Sterling was last trading at $1.2841 on the dollar, off about 0.1%. It had rallied more than 1c from the day’s lows against the dollar with the sizeable defeat for May seen forcing Britain to pursue different options.

“Elections tend to cause sell-offs in markets because they’re inherently uncertain events but the UK situation is more complex than a normal vote,” said Stephanie Kelly, senior political economist at Aberdeen Standard Investments in Edinburgh.

“The margin of Theresa May’s defeat and the call of no confidence do matter for markets in the short term,” she said, adding she expected sterling to be volatile until the result of the no-confidence vote is known.

May’s defeat put pressure on UK-focused exchange-traded funds (ETFs). A Tokyo-traded FTSE 100 ETF was down about 1% on Wednesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan was a touch lower, having swung up on Tuesday after Chinese officials came out in force to signal more measures to stabilise a slowing economy.

Australian shares rose 0.2% while Japan’s Nikkei lost 0.7% by midday.

China’s blue-chip CSI300 index of Shanghai and Shenzhen shares fell 0.1% on Wednesday.

Despite the small loss, it managed to hold on most of the previous session’s gains, when it rose nearly 2%.

British lawmakers defeated Theresa May’s Brexit divorce deal by a crushing margin on January 15 2019, triggering a new confidence vote and yet more political upheaval that could lead to a disorderly divorce or even a reversal of the 2016 decision to leave.

China’s central bank on Wednesday made its biggest daily net cash injection via reverse repo operations on record — totalling $51.6bn — in another sign of growing concern over risks facing the slowing economy.

In Tuesday’s session on Wall Street, the S&P 500 gained 1.1% as technology and internet stocks gained on Netflix’s plans to raise fees for US subscribers.

The S&P 500 communication services index, which includes Netflix and Alphabet, jumped 1.7%, while the technology sector tacked on 1.5%.

The China stimulus hints and dovish remarks by one of the US central bank’s most hawkish policymakers also helped lift the US market.

Ester George, president of the Federal Reserve Bank of Kansas City and a voting member of the Fed’s policy-setting committee in 2019, made the case for patience and caution on interest rate hikes to avoid choking off growth.

China-US trade talks

Sentiment was not helped by reported comments from US trade representative Robert Lighthizer that he did not see any progress made on structural issues during US talks with China last week.

Investors “are mainly focused on the outcome of the US-China trade negotiations, but it may take more than a month before it will become clear”, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“It’s hard for market sentiment to turn one way or the other, whether a recovery or decline, as long as it remains unclear what outcome there will be.”

Lighthizer’s caution helped force the dollar to remain on the defensive against the Japanese yen, a safe-haven currency that is often preferred by traders during times of market and economic stress.

The greenback lost 0.2% at ¥108.50.

Elsewhere in the currency market, the euro lost 0.1% to $1.1405, extending its decline against the dollar for a fifth session.

The single currency has lost nearly 1.5% from a 12-week high hit on January 10.

US treasuries steadied after a choppy overnight session. The yield on benchmark 10-year notes last stood at 2.711%, slightly lower from 2.718% at the US close on Tuesday.

In commodities, oil prices rose about 3% overnight supported by China’s promise of more stimulus. Worry over slowing Chinese demand have been one of the key factors in the recent slide in oil.

International Brent crude oil futures were last off 7c, or 0.1%, at $60.57 a barrel.

US crude futures were down 12c, or 0.2%, at $51.99 a barrel.

Spot gold was 0.1% lower at $1,288.40/oz, holding not far off a seven-month peak of $1,298.60/oz scaled on January 4.

Reuters