European stocks trim losses as investors eye chance of relief from hard Brexit

Pound on track for largest daily gain in more than 8 years

European stocks pared losses Tuesday after U.K.’s Prime Minister Theresa May said Britain will break away from the European Union’s single market and British lawmakers will be able to vote on Brexit’s terms.

May, in a highly anticipated speech in London, said Britain does “not seek membership of the single market but the greatest possible access to it,” signaling a so-called hard Brexit from the other 27 members of the EU.

But she also said both houses of Britain’s parliament will be able to vote on the final terms of a Brexit agreement worked out by U.K. and EU officials.

A vote in parliament “in theory should tip the balance slightly further away from a hard Brexit even if May acknowledged that we will not be seeking access to the single market,” said Craig Erlam, senior market analyst at Oanda, in a note.

The Stoxx Europe 600 SXXP, +0.00% came off session lows for a decline less than 1 point at 362.89, but all sectors remained in the red. The index had been down by as much as 0.7% ahead of May’s speech. On Monday, the pan-European benchmark slumped 0.8%.

Among major indexes, Germany’s DAX 30 DAX, +0.02% was off 0.2% at 11,541.37, and France’s CAC 40 PX1, -0.31% shed 0.4% at 4,864.12.

Meanwhile, the British pound GBPUSD, +2.7063% shot up nearly 3% intraday against the U.S. dollar, above $1.2300, and was charging toward its largest one-day gain since October 2008. Sterling was changing hands at $1.2360, up from $1.2046 on Monday.

“The market has been heavily short the pound as of late, with the pound being extremely sensitive to the prospect of hard Brexit,” Erlam added. “This left the market in such a position that any sterling positive revelations from May would trigger exactly the response we’ve now seen.”

The pound’s surge dragged down U.K. blue chips, pushing the U.K’s FTSE 100UKX, -1.12% down 1.1% to 7,248.14. It’s heading toward its worst session in 10 weeks. Many U.K.-listed shares have pushed higher on pound weakness in recent months, as companies that make profit overseas will see earnings boosted when translated back into sterling terms.

Movers: Zalando SE shares ZAL, -6.29% dropped 5.8% as growth in quarterly revenue and adjusted earnings fell short of expectations at the German online fashion and accessories retailer.

Rolls-Royce Holdings PLC shares RR., +4.85% jumped 4.9% after the jet-engine maker said Monday it will pay $810 million to settle corruption investigationswith U.S., British and other authorities.

British American Tobacco shares BATS, -3.29% turned down 3%, among the multinational companies hurt as the pound rallied. The company said it would pay $49.4 billion for the 57.8% of Reynolds American Inc. RAI, +3.43% that it doesn’t already own. BAT said in October it had made an offer for Reynolds valued at $56.50 a share, or about $47 billion, for the stake.

Intertek Group PLC ITRK, -3.00% fell 3% after Credit Suisse downgraded the product testing company to underperform from outperform. The industry facing “headwinds to near-term growth, potential disruption to international trade and relative valuation,” Credit Suisse said.

Alstom SA ALO, -1.10% was down 1.1%. The French train maker said sales rose 3.1% in the three months through December, a slower pace than in the previous six months.

Other indexes: Spain’s IBEX 35 IBEX, -0.04% was off 0.1% at 9,394.96 and Italy’s FTSE I945, +0.51% moved up 0.4% to 19,321.29.

The euro EURUSD, +0.9621% also rose after May’s speech, changing hands at $1.0713, up from $1.0656 late Monday. Against the euro, the poundGBPEUR, +1.7071% rose to €1.1566 from €1.1363 on Monday.

Economic data: The ZEW indicator of German economic expectations rose to 16.6 in January, compared with 13.8 in December.

Annual inflation accelerated to 1.6% in December from 1.2% a month earlier, the U.K.’s Office for National Statistics said Tuesday, the fastest increase since July 2014.

Eurozone banks expect credit standards to ease in the current quarter, while demand for funding is also expected to pick up, the European Central Bank’s Bank Lending Survey found Tuesday.

Read this article in its original format at MarketWatch.com

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