HONG KONG (AFP) – The pound sank against its major peers yesterday as British Prime Minister Theresa May’s future looks increasingly uncertain, while Asian equities were mostly down after a recent rally to multi-year highs.
Markets have surged in recent weeks – with Wall Street hitting several records and Tokyo touching 26-year highs – on optimism about the global economy and a series of strong corporate earnings.
But investors have started to cash in as worries begin to emerge about high share valuations, while there are also fears about Donald Trump’s much-vaunted tax cuts as US lawmakers struggle to agree a deal.
Sterling tumbled yesterday after reports that dozens of MPs in the ruling Conservative Party were backing a move to oust May, whose leadership has been battered by a string of scandals and crises.
The questions over the prime minister’s future come as her government’s handling of Brexit talks with the European Union attracts criticism from all sides.
On equity markets Tokyo’s Nikkei ended down 1.3 per cent, while Seoul shed 0.5 per cent.
Sydney lost 0.1 per cent on worries about the ruling coalition’s future after Prime Minister Malcolm Turnbull lost his majority when another of his MPs resigned at the weekend, the latest victim of a constitutional crisis over politicians who hold dual citizenship.
There were also losses in Bangkok but Hong Kong closed up 0.2 per cent, while Shanghai ended 0.4 per cent higher.
In early European trade London rose 0.4 per cent, Frankfurt put on 0.2 per cent and Paris was flat.
Dealers are keeping a close watch on Capitol Hill, where US lawmakers are trying to cobble together a bill to reform the tax system.
However, Trump’s Republican party is divided, with senators calling for a one-year delay to corporate tax cuts, among other things. Fears over the possible delay sent the Dow lower in New York on Friday, ending eight weeks of gains.
The split has fuelled fears the tax cuts – the promise of which have fuelled a global markets rally – could fail in the same way as the planned overhaul of Obamacare earlier in the year.
“US wrangling over the tax plan continues and it’s starting to look a lot like the Obamacare mess and own goal the (Republican party) scored on itself,” said Greg McKenna, chief market strategist at AxiTrader.
“The administration is trying to put a brave face on it, Treasury Secretary Steve Mnuchin is still pushing and cheerleading for a vote before Christmas. But it seems the House and Senate bills have irreconcilable differences.”
Oil prices edged up as a rise in the number of operating rigs was offset by lingering concerns about the Middle East.