Sunday 20 May 2018

Cohen's exit send tremor through global markets

British Chancellor of the Exchequer Philip Hammond Photo: Dominic Lipinski/PA
British Chancellor of the Exchequer Philip Hammond Photo: Dominic Lipinski/PA

Sterling touched a three-month low against the euro on Wednesday before rebounding, as the release of the European Union's draft guidelines for a future trade deal with Britain underlined the gap between the two sides as they negotiate a Brexit deal.

British finance minister Philip Hammond said that financial services should be at the heart of a new trade deal, but the EU has rejected that approach and wants to limit the sector's market access after Brexit.

Brussels has refused to let Britain pick and choose the parts of the EU's single market to which it can continue to have free access, chief among them the United Kingdom's large financial services industry.

The UK is racing to clinch a Brexit transition deal that Hammond repeated on Wednesday would be concluded later this month, but uncertainty about whether that is feasible has weighed on the pound, even as more hawkish signals from the Bank of England about rate rises this year have supported the pound.

European shares opened lower on Wednesday after the resignation of US President Donald Trump's economic adviser Gary Cohn, seen as a bulwark against protectionist forces within the US government.

Smurfit Kappa beat the trend, rising for a second day after US peer International Paper revealed the takeover offer it made for Europe's largest paper packaging producer was worth €8bn.

But fears of a trade war clouded wider sentiment.

"Gary Cohn's departure rattled markets and equity markets look set to fall on the open. Stocks have declined overnight in Asia and it's looking like it will be red today on the open," Neil Wilson, a senior market analyst at ETX Capital told his clients in a morning note.

Most European markets and sectors were down, with Germany's DAX losing 0.5pc.

German carmakers, which are expected to suffer from new US tariffs, took a hit. Volkswagen lost 1.6pc and Daimler 1.3pc, the second- and third-worst performance of the German blue chip index.

The advertising sector retreated after the 'Financial Times' said P&G would cut agency spending by $1.25bn over three years. France's Publicis and Britain's WPP fell 1.9pc and 1.6pc respectively.

Oil prices fell and London metals slipped, weighing on the energy and basic materials sectors.

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