Global stock markets retreated yesterday as China-US trade talk euphoria faded, with London equities also hurt by a rally in the British pound on speculation over a possible Brexit delay.
Markets had hurtled higher Monday after US President Donald Trump said he would delay a hike in tariffs on Chinese goods and described the two countries as being in “advanced stages” of negotiations towards a deal.
However, as the dust settled on Tuesday, doubts festered over whether Beijing and Washington can resolve their bitter trade war.
“Stocks have handed back some of yesterday's gains as the optimism surrounding US-China trade relations has faded,” said CMC Markets analyst David Madden.
“It was a welcome relief that the US won't be implementing higher tariffs on Chinese imports , but the trade spat is far from over and investors are wondering: where do we go from here?”
Trump's decision to waive this week's deadline for China-US negotiations and his upbeat tone on their progress had lit a fire under equities Monday on hopes the long-running dispute could be nearing its end.
In London on Tuesday, sterling rose on a report that Prime Minister Theresa May was considering putting off the March 29 deadline for Britain to leave the European Union if she is unable to push her own deal through parliament, as she attempts to avoid a no-deal divorce.
In reaction, the pound leapt to $1.3238 ‒ the highest level since October.
And the European single currency touched a 21-month peak at 85.88 pence.
Addressing lawmakers later in the day, May promised to allow parliament to delay Brexit by up to three months so that Britain would not crash out of the European Union without a deal on the scheduled departure date of March 29.
"The FTSE is losing ground ... as a stronger pound is hitting major industrials and a prospect of a delay in Brexit is adding to the uncertainty for businesses," said City Index analyst Fiona Cincotta.
"Brexit tensions that have been building over the last couple of weeks with party defections and the formation of the group of independent MPs seem to have yielded some results."
The stronger pound weighs on FTSE-listed multinationals whose earnings abroad are converted back into sterling.
Adding upside to sterling was the announcement by opposition leader Jeremy Corbyn that his Labour Party would support a second referendum on leaving the bloc if its own plan for Brexit is not approved.
In Washington, Federal Reserve boss Jerome Powell appeared to add weight to his earlier repetition that the US central bank will be "patient" before making any further changes in the benchmark borrowing rate.