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GLOBAL MARKETS-FTSE keeps Europe steady as sterling suffers Brexit blow
December 5, 2017 / 10:08 AM / 9 days ago

GLOBAL MARKETS-FTSE keeps Europe steady as sterling suffers Brexit blow

* European shares steady after upbeat euro zone data, FTSE gains

* Sterling at 2-month high after lack of Brexit deal

* Miners hit as metals buckle, tech stuck in rotation

* Investors move to banks and other beneficiaries of lower tax

* Oil dips, Yemen conflicts stoke fresh worries

* Copper hits lowest in almost 2 months

By Marc Jones

LONDON, Dec 5 (Reuters) - European markets started firmly on Tuesday, as a hit to the pound from stalled Brexit talks lifted London’s FTSE and economic data pointed to the euro zone finishing the year strongly.

A rotation from high-flying tech stocks into banks remained in motion and some heavy falls in metals markets sideswiped mining stocks, but there were plenty else to underpin risk appetite.

The early blitz of European data included the best Spanish industrial production numbers in 14 months a rebound in Italy’s services sector, a private sector jump in Sweden and signs of a hiring boom in France.

Data out of China overnight showed growth in its burgeoning services sector at a three-month high after U.S. President Donald Trump’s long-promised tax cuts took another big step forward in Washington.

“The euro zone enjoyed a bumper November, setting the scene for a buoyant end to the year,” said Chris Williamson, chief business economist at IHS Markit, which compiles the PMI data.

IHS Markit’s final composite Purchasing Managers’ Index for the euro zone, seen as a good guide to growth, was confirmed at an earlier flash reading of 57.5, up from October’s 56.0.

“Given the strength of order book growth and hiring, as well as the elevated level of business optimism, the euro zone should start the New Year on a solid footing,” Williamson added.

The pound hogged most of the action in the currency markets meanwhile after hopes for a deal on the so-called Brexit divorce deal with the European Union was thwarted by Northern Ireland’s Democratic Unionist Party (DUP) over border concerns.

Sterling skidded back under $1.34 and as far as 88.68 pence per euro. Another sharp drop in UK car buying also dampened the mood though analysts said the pound’s drop might only be temporary.

“The immediate fallout should be limited as markets have become well versed with the idea that Brexit won’t be solved overnight,” said ING. “We remain constructive on GBP.”

Going in the other direction, the Australian dollar hit a three-week high of $0.7654 as retail sales there bounced and the central bank gave an upbeat assessment of the economy as it kept its interest rates at 1.5 percent.

The dollar fetched 112.49 yen, little changed after a brief foray to 113.09 on Monday, which was its highest level in more than two weeks. The euro was limp at $1.1846 but comfortably in its familiar range of between $1.1810-1.1960.

METALS BUCKLE

In bond markets, U.S. Treasuries were still lingering below 2.4 percent, while the euro zone data and signs the ECB’s bond buying continues to have favourites cut Italian-German spread to its smallest in more than a year.

France and Italy each enjoyed ECB purchases last month that were nearly a billion euros above their ‘capital key’ at 10.439 billion euros and 9.077 billion euros. The capital key is the method by which the ECB buys government bonds for its stimulus in relation to the size of the economy of each member state.

“The latest ECB buying data underscores the flexibility of the scheme that tends to benefit the periphery,” said Commerzbank rates strategist Christoph Rieger.

The day’s other significant moves came in metal markets on a retreat. Copper , which is often jumpy around key China data, dropped over 2 percent to a near two-month low. Nickel took a similar hit and zinc dropped 1 percent.

That was despite UBS raising its forecast for electric vehicles, which eventually led to an upgrade in the 2020-2021 nickel outlook. However, the Swiss brokerage warned there remained at a vast inventory pile of the metal and its ore.

Oil dipped slightly too after falling more than 1 percent on Monday, buoyed by expectations of a drop in U.S. crude stockpiles and after last week’s deal between OPEC and other crude producers to extend output curbs

U.S. West Texas Intermediate futures traded at $57.27 per barrel, down 0.3 percent for the day. International benchmark Brent futures inched 0.1 percent lower to $62.37 a barrel.

Some market players fear the killing of former Yemeni president Ali Abdullah Saleh on Monday may destabilise the impoverished and worn-torn country even further, threatening the safety of a major shipping route through the Strait of Bab al-Mandeb on the Red Sea off the Yemeni coast.

Additional reporting by Hideyuki Sano in Tokyo; Dhara Ranasinghe in London; Editing by Raissa Kasolowsky

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