October 16, 2019 / 11:12 AM / 9 months ago

GLOBAL MARKETS-Sterling falters as Brexit approaches its endgame

    * Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
    * Brexit negotiations resume in Brussels
    * Pound edges lower
    * European stocks dip 
    * European third-quarter earnings seen falling 3.7% y-o-y
    * U.S. sanctions hit Turkish markets  

 (Updates prices, adds Brexit developments)
    By Julien Ponthus
    LONDON, Oct 16 (Reuters) - Sterling came off five-month
highs and stocks traded sideways on Wednesday as the European
Union and Britain sought to avert a disorderly Brexit before an
EU summit on Thursday. 
    Hopes of a breakthrough lifted markets on Tuesday, but
investors turned more cautious after looking for a deal during
the night that never came.
    Conflicting reports about the ongoing talks triggered a
series of sharp moves on the pound. Reports that Germany might 
use emergency measures to counter any market panic from a hard
Brexit, such as banning bets on falling share prices, also
weighed on morale. 
    "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.   
    Sterling was down 0.4% against the dollar with
investors trading 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 Oct. 31 deadline.
    Euro zone government bonds were also volatile on Wednesday
as investors watched the eleventh-hour talks. 
    German 10-year government bond yields were last
flat at -0.42%, after reaching an 11-week high of -0.397% as
Bunds extended a sell-off that began on Tuesday.
    British government 10-year bond yields were down 2.7 basis
points at 0.67%, unaffected by data showing inflation in
September reached 1.7% year-on-year, below market expectations.
    The pan-European STOXX 600 retreated 0.1%, but
Britain's domestically focused midcaps, a gauge of
Brexit anxiety, fell 0.8%. Ireland's ISEQ, another
vulnerable index, lost 0.6%.    
    Earlier, shares rose in Asia. MSCI's broadest index of
Asia-Pacific shares outside Japan gained 0.5%.
MSCI's gauge of stocks across the globe was
    "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. Morgan Stanley had a below-consensus view on how companies
would fare this quarter, he said.     
     Europe's companies are struggling with uncertainties
ranging from Brexit and the U.S.-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 I/B/E/S data from Refinitiv.
    Bloomberg reported, citing sources, that China will struggle
to buy $50 billion of U.S. farm goods annually unless it removes
retaliatory tariffs on American products, which would require
reciprocal action by U.S. President Donald Trump.
    The U.S.-China trade war will cut 2019 global growth to its
slowest pace since the 2008-2009 financial crisis, the
International Monetary Fund warned on Tuesday. 
   Global gross domestic product is now expected grow 3% in
2019, the IMF said its latest World Economic Outlook
projections, down from 3.2% in a July forecast, largely because
of global trade friction.
    U.S. stocks, which typically track the ups and downs of the
trade war, were set to open in the red. S&P 500 futures
and Nasdaq futures were both down 0.3%.    
    In commodities, Brent crude shed about 0.1 cent to
$58.66 a barrel. U.S. crude rose 10 cents 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 U.S. prosecutors charged the
state-owned lender with taking part in a multibillion-dollar
scheme to evade U.S. 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.

 (Reporting by Julien Ponthus, Marc Jones and Olga Cotaga;
editing by Larry King)
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