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Brexit extension: Markets ‘fear change in government’ | Business News



News of a Brexit extension has been greeted with caution by UK markets and the pound.

The UK had been facing a no-deal Brexit on Friday night but the other 27 EU member states decided to give Prime Minister Theresa May an extension until the end of October.

The news comes after weeks of deadlock between MPs in Westminster.

At first the FTSE 100 Index in London looked set to fall, starting with a 0.25% slip minutes after it opened for trading and at one point losing half a percent.

But just before 2pm, it was just three points below its starting value, down 0.04%.

The pound was also unmoved, remaining just below $1.31 and marginally down against the euro, at €86.14.

The lack of exuberance from both suggested uncertainty about the future – of Brexit but, more importantly, of Mrs May’s government.

Sterling, as well as UK and European equities, would usually be expected to thrive after news that the possibility of a no-deal Brexit had ended – at least for now.

Theresa May speaks at a news conference at the European Union Council headquarters in Brussels

PM: We need to leave EU as soon as possible

But any gains were offset by the fears that Mrs May could be replaced during the long extension and her replacement could usher in a new era of uncertainty.

Chris Turner, head of foreign exchange strategy at ING, said: “The extension is unlikely to improve business confidence
much, thus limiting the upside to GBP.

“The rising probability of a change in Conservative Party leadership ahead of the new October deadline suggests a difficulty for EUR/GBP to move below the 0.85 pence level,” he said.

Societe Generale currencies analyst Kit Juckes said: “It isn’t brilliant for the economy, to add uncertainty on top of uncertainty.”

Airline stocks reacted positively, however, with EasyJet and British Airways owner IAG gaining about 3% each.

Chief executive of the Airport Operators’ Association, Karen Dee said: “While we are well-prepared for a no-deal scenario with clear measures in place to continue flights between the UK and EU, we recognise the wider uncertainty around a no-deal scenario.

“The extension will give people confidence to book their holidays or business travel plans with total confidence, knowing that nothing will change to travel arrangements in the coming months.

Elsewhere in Europe, the DAX in Germany dropped 0.3% to 11,867.35. France’s CAC 40 rose 0.3% to 5,464.85.

Ireland’s Brexit-sensitive ISEQ stock index was flat and the pan-European STOXX 600 index dipped 0.1%.

But Brexit was not the only factor in the subdued nature of the markets.

There were signs of some progress in trade talks between the US and China but there is still a great deal of uncertainty here and White House press secretary Sarah Sanders said “significant work remains” before a deal can be reached.

Chinese markets were down, as were those in Hong Kong and Australia, the latter after the prime minister called a national election for next month.

US markets were up slightly on opening.

Nick Twidale, Sydney-based analyst at Rakuten Securities Australia, said: “Traders continue to operate in a ‘wait and watch’ mode as they look for the next opportunity in a cautious market.”

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