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All eyes on sterling as Brexit hangs in balance


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All eyes on sterling as Brexit hangs in balance

➤ Sterling seesaws before British lawmakers vote on Brexit deal with the EU.

➤ Global equities rally as China pledges economic stimulus measures.

➤ German economy grows at slowest pace in five years in 2018.

➤ Wall Street set to open higher; JPMorgan, Wells Fargo reporting fourth-quarter 2018 earnings.

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The British pound struggled to hold on to gains against the dollar as markets await a crucial vote in the British Parliament on whether to approve the U.K.'s draft withdrawal agreement with the European Union later today.

In a last-minute effort to convince members of Parliament to back the draft Brexit deal, U.K. Prime Minister Theresa May warned yesterday that a vote to turn down the agreement could jeopardize Brexit altogether. The EU, meanwhile, released a letter reiterating that the Irish backstop, a key point of contention in the withdrawal agreement, would only be used temporarily, if at all.

Sterling lost early gains and was down 0.09% against the dollar at $1.285 at 6:30 a.m. ET, hours before British lawmakers vote on the Brexit deal. It was up 0.22% against the euro at €1.124.

But with the deal widely expected to be struck down in parliament later today at about 7 p.m. London time, the markets "will probably not react to the defeat itself but to the size of the defeat," Danske Bank Research said in a daily note. If the withdrawal agreement gets officially rejected, May will have three days to present a new deal to parliament.

"A narrow defeat means that May might be able to get it through at a later stage, but a big defeat means we are in uncharted territory," Danske Bank Research added.

The pound could fall if a general election is called following the Brexit deal's expected defeat as it would bring further uncertainty regarding Britain's exit from the bloc, ING analysts said in a note analyzing the currency's possible reaction to various Brexit scenarios. The most positive outcome for sterling would be a second Brexit referendum, the analysts said, adding that the currency could still strengthen to about $1.40 if a market-friendly resolution is reached by 2019-end.

Meanwhile, the euro slipped 0.31% against the dollar as preliminary data showed GDP growth in Germany, the eurozone's largest economy, slowing to a five-year low of 1.5% in 2018. The Chinese yuan rose 0.11% to 6.76 per dollar.

The safe-haven Japanese yen dropped 0.30% against the dollar, while gold dipped 0.15% to $1,289.40 per ounce as equities across the globe advanced. The Chinese government reportedly pledged to cut more taxes in a bid to shore up the domestic economy, offering support to Asian stocks as the Shanghai SE Composite index gained 1.36% and Hong Kong's Hang Seng rose 2.02%. Japan's Nikkei 225 returned from holiday with a 0.96% gain from Friday's close.

The positive sentiment in Asia spilled into European equities, with the FTSE 100 index up 0.29%, France's CAC 40 gaining 0.17% and Germany's DAX ticking up 0.07%. Futures point to U.S. stocks staging a comeback at the open, after the S&P 500 closed 0.53% lower yesterday, while the tech-heavy Nasdaq Composite dropped 0.94%.

JPMorgan Chase & Co. and Wells Fargo & Co. are reporting their fourth-quarter 2018 earnings before markets open. Citigroup Inc. shares closed nearly 4% higher yesterday after the banking group's profit for the last quarter of 2018 beat consensus estimates.

Yields on 10-year Treasurys slipped 1 basis point to just under 2.70%. Brent crude oil jumped 1.54% to $59.90 per barrel on the ICE Futures Exchange.

More from S&P Global Market Intelligence:

No-deal Brexit not a factor in ratings agency calculations for UK banks

Experts warn US-China trade war truce needed to restore mining sentiment

Chinese economy, wealth disparity in US could impact 2019 retail performance

Alibaba Group president downplays significance of China slowdown

As bankruptcy looms, PG&E's gas utility offers complex mix of strength, risks

Citigroup talks recession fears, exposure to Sears, PG&E

S&P Global Market Intelligence Q4'18 M&A League Tables

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The day ahead:

8:30 a.m. ET — U.S. PPI (Econoday consensus: 0.0% monthly)

8:30 a.m. ET — U.S. Empire State manufacturing survey (Econoday consensus: 12.0)

8:55 a.m. ET – U.S. Redbook

10:00 a.m. ET – ECB President Mario Draghi speaks

11:30 a.m. ET – U.S. Federal Reserve's Neel Kashkari speaks

1:00 p.m. ET – U.S. Fed's Robert Kaplan speaks

1:00 p.m. ET – U.S. Fed's Esther George speaks

6:50 p.m. ET – Japan machine orders (Econoday consensus: 3.3%)

6:50 p.m. ET – Japan PPI (Econoday consensus: -0.3% month over month, 1.9% year over year)

8:30 p.m. ET – China house price index

11:30 p.m. ET – Japan tertiary index