Portfolios lift as oil soars, pound falls and Trump tempers tensions

In the six weeks since prime minister Theresa May announced talks with the Labour party in a bid to break parliamentary deadlock over her withdrawal, the pound and stock markets had largely escaped the impact of Brexit headlines.

But that changed this week, first with news that May had agreed to set a timetable for her departure as prime minister, then with today’s collapse of talks with Labour.

The pound’s fall below the $1.28 mark has delivered a fillip to a modest stock market recovery from earlier falls on trade war fears.

Trump’s downplaying of the tariffs tit-for-tat with China as a ‘little squabble‘ has helped to lift sentiment, most notable in the performance of China’s main Shanghai Composite index, which had been hit hard by the raising of tariffs.

The index is up 4.6% over the week to yesterday, though that is not to lift it from a heavy monthly loss that still stands at 9.6%.

Trump’s softening stance on tariffs elsewhere meanwhile provided a boost to Germany’s DAX 30, which rallied 4.2% in pound terms.

Car manufacturers, which make up a big chunk of the DAX, drove the index higher, after Trump delayed a decision on imposing tariffs on imports of cars and car parts to allow more time for trade talks with the European Union and Japan.

Russia was meanwhile the best performing major market this week and also takes top spot so far in 2019 as well as over the last 12 months.

The oil price, up 9.2% this week and 49.2% higher since the turn of the year in pound terms, is the dominant driver of that stock market rally. 

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The price of Brent crude, which had taken a knock over fears trade tensions between the US and China would hurt demand from the world’s fastest-growing major economy, recovered in dramatic fashion this week.

Rising tensions in the Middle East, with sabotage attacks on some oil pumping stations and tankers in Saudi Arabia, have sparked renewed supply fears.

The only major stock market to deliver losses in pound terms is Brazil, down 4.4% this week, as the rally that took hold after  Jair Bolsonaro’s election as president goes into reverse.

Bearish economic forecasts and deepening uncertainty over the government’s ability to get its flagship pension reform bill through congress hit the country’s real currency and left stocks on course for their biggest monthly fall in a year.

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