* Sterling tumbles a cent after Brexit deal hopes crumble
* Asia rose overnight on U.S.-China trade hopes
* Oil nudges higher for second day after 12-day losingstreak
* Dollar gets going after soft start, Wall Street seenedging high
* Bunds rally, Italian bond yields dip as budget remains infocus
By Marc JonesLONDON, Nov 15 (Reuters) - Sterling tumbled and the rest ofEurope's share markets groaned on Thursday after a long-awaitedBrexit agreement was thrown into chaos as Britain's chiefnegotiator for the deal quit just hours after it had beenunveiled.Up until that point markets had looked relatively calm. Asiahad cheered news that China and the United States were back incontact about their trade dispute, and oil was inching up againhaving halted a record losing streak.But then came the hammer blow with Brexit minister DominicRaab quitting in protest at Prime Minister Theresa May's dealfor leaving the European Union. "No democratic nation has ever signed up to be bound by suchan extensive regime, imposed externally without any democraticcontrol over the laws to be applied, nor the ability to decideto exit the arrangement," he said in his resignation letter.
Cue a sterling meltdown. The currency slumped a full 2 centsto $1.2750 and though that made the FTSE stronger -- aweaker pound makes life easier for exporters on the index -- bigUK banks the rest of Europe sank swiftly into the red. "The reaction is sterling shows that the chance of no Brexitdeal has spiked," said Tim Graf, Head of Macro Strategy for EMEAat State Street Global Markets.
"It also introduces thoughts of a leadership challenge (forBritish Prime Minister Theresa May) which seems likely now."The turmoil also boosted demand for safe-haven Germangovernment bonds. Ten-year yields on what is regarded as one ofthe safest assets in the world, fell over three basis points to0.36 percent -- its lowest in over two weeks. UK government bonds saw a rush of demand too with the reflexdive for cover and the sight of state owned bank RBS stocks downalmost 9 percent, drove the biggest fall in 5-year yields sincejust after the June 2016 Brexit vote. EU leaders had said they would meet on Nov. 25 to endorsethe divorce deal, but May now faces the much more perilousstruggle of getting parliament to approve what was agreed. "We are basically trading the headlines." said Ned RumpeltinEuropean Head of Currency Strategy at TD Securities in London."I think a leadership challenge is imminent."
OIL SIMMERSInvestors were also starting to look ahead to U.S. tradingwhere futures were pointing to a modestly higher start asforecast topping earnings from Walmart provided a welcomeappetiser ahead of U.S. retail sales later. In the commodity markets, where Brexit may be a sideshow butturbulence is still acute after a 12-day losing streak was setthis week, the mood was much calmer.U.S. oil futures steadied at $56.35 a barrel, after aslight bounce overnight. Brent was up 0.4 percent at$66.42.MSCI's broadest index of Asia-Pacific shares outside Japan had also ended up 0.8 percent having fallen theprevious day as the sharp slide in oil prices had heightenedanxiety about the global growth outlook.Shanghai Composite Index gained 0.9 percent, whileHong Kong's Hang Seng rose 0.8 percent on the China-U.S.communications, while Australian stocks inched up 0.05percent and Japan's Nikkei shed 0.2 percent."While it's difficult to pin-point a specific event for therisk-off move, recent themes appear to be keeping marketscautious include oil's recent plummet, Apple's fall, U.S.political gridlock, China's slowing growth, tighteningliquidity, a hawkish Fed, earnings peak, Italian jitters, andBrexit uncertainty," wrote economists at ANZ.The S&P 500 had fallen for a fifth straight dayovernight too, with financial stocks hit by fears of tighterregulations once the Democratic Party takes control of the Houseof Representatives. U.S. equities have also been pressured by concerns thatearnings growth might be peaking, trade tensions and a slowingglobal economy - factors that had triggered a rout in riskierassets in October."If U.S. stocks are to bounce back, economic indicators willbe key," said Junichi Ishikawa, senior forex strategist at IGSecurities in Tokyo."Focus will be on today's U.S. retail sales data, which willprovide a view of how private consumption -the main component ofeconomic growth- is faring." U.S. retail sales for October willbe released at 1330 GMT. (Reporting by Marc Jones; Editing by Toby Chopra and AngusMacSwan)
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