European equity markets suffered on two accounts yesterday. First, the rally in the pound on the back of comments from Angela Merkel in relation to Brexit caused a large decline in the FTSE 100 as the traditional inverse relationship between sterling and the equity benchmark kicked in. The Bundesbank, said it didn’t see the need for any stimulus package to be introduced, and that weighed on the DAX, and to a lesser extent other eurozone markets too.
The German Chancellor showed some flexibility and optimism with regards Brexit, by saying that a solution can be found that can uphold the principles of the Belfast Agreement 1998, as well as maintaining the integrity of the EU’s single market. This exact issue has been the sticking point of deadlock, and a solution hasn’t been put forward yet, but at least we are seeing some goodwill and constructive language being brought to the table.
The pounds’ recent decline against the euro and the US dollar appeared to have bottomed out last week, and in light of Merkel’s comments yesterday we might see a positive run on sterling. Since Boris Johnson became UK Prime Minister, the chatter about a no-deal Brexit increased, but we might have turned a corner yesterday.
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