London — European equities opened lower and sterling came off five-month highs on Wednesday as the EU and Britain resumed talks in Brussels to avert a disorderly Brexit before an EU summit on Thursday and Friday.

Hopes of a breakthrough lifted markets on Tuesday, but investors turned more cautious after looking for a deal during the night, which didn’t come.

“Most of the good news that could have been anticipated has been priced in, and now there’s caution, it seems, on whether we get a deal today or not,” said Kallum Pickering, senior economist at Berenberg.

The pound was down 0.5% against the dollar with investors trading at volatility levels not seen since the 2016 June Brexit referendum. The pound had strengthened by close to 5% over the past week as investors rushed to reprice the prospect of a last-minute Brexit deal before the October 31 deadline.

The pan-European Stoxx 600 retreated 0.3%. Britain’s domestically focused mid-caps, a gauge of Brexit anxiety, fell 1%.

Earlier, shares rose in Asia. MSCI’s broadest index of Asia-Pacific shares excluding Japan gained 0.5%. MSCI’s gauge of stocks across the globe was flat.

“Even though we are most optimistic that a deal does happen, we don’t think the most likely outcome is that it happens by October 31, so you would be looking at some form of extension and potentially elections,” said, Andrew Sheets, chief cross-asset strategist at Morgan Stanley. Third-quarter earnings are expected to show an overall decline in earnings, which could also weigh on morale, Sheets said, adding that Morgan Stanley had a below-consensus view on how companies would fare this quarter.

Europe’s companies are struggling with uncertainties ranging from Brexit and the US-China trade war to Germany’s manufacturing recession.

Companies listed on the Stoxx 600 index are now expected to report a decline in third-quarter earnings of as much as 3.7%, worse than the 3% expected a week ago, according to IBES data from Refinitiv.

Bloomberg reported, citing sources, that China will struggle to buy $50bn of US farm goods annually unless it removes retaliatory tariffs on American products, which would require reciprocal action by US President Donald Trump. The US-China trade war will cut 2019 global growth to its slowest pace since the 2008/2009 financial crisis, the International Monetary Fund (IMF) warned on Tuesday.

Global GDP is now expected grow 3% in 2019, the IMF said in its latest World Economic Outlook projections, down from 3.2% in a July forecast, largely because of global trade friction.

In commodities, Brent crude shed about 0.1c to $58.66 a barrel. US crude rose 10c to $52.91 after falling the day before over fears the trade war would keep squeezing the global economy.

In emerging markets, Turkey’s Halkbank saw its shares and bonds plunge after US prosecutors charged the state-owned lender with taking part in a multi-billion-dollar scheme to evade US sanctions on Iran. A day earlier, Washington had imposed sanctions on Turkish officials, raised tariffs and halted trade talks after Turkey invaded northeastern Syria in a campaign again Kurdish fighters.

Before Turkish markets opened, authorities banned short selling on seven large Turkish bank stocks, including Halkbank. Selling shares in the banks only to buy them later in the session was also banned, authorities said.