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Daily Briefing: Not so fast, FTSE

LONDON (Reuters) - While Asia markets warmed to the U.S.-China trade deal and caught up with Monday’s surge in world stocks, yesterday’s star performer – Britain’s FTSE100 – may have reason to pause.

A broker speaks on the phone on the dealing floor at ICAP in London, Britain January 3, 2018. REUTERS/Simon Dawson

The FTSE100 surged 2.25% on Monday, its biggest one-day gain in a year, to reach its highest since August.

The FTSE250 midcap index rose to record highs.

The clear 80-seat majority won by Prime Minister Boris Johnson’s Conservative Party in last week’s election accelerated the gains for largely under-owned UK equities as it clarified the Brexit outlook for many investors: withdrawal from the European Union is agreed for Jan. 31 and a government is set to be in place for five years, with fiscal stimulus in the pipeline.

The gains were also encouraged by a belief Johnson would not be beholden to extreme factions within his party and allow him to make some concessions to reach a trade agreement. But doubts were cast on that idea overnight as government officials indicated they would not extend the Brexit transition period beyond the end of next year -- upping the ante for a trade deal within 11 months of January’s withdrawal and once again risking no deal, or at least more brinkmanship.

The renewed hard-line stance was enough to knock almost a cent off sterling’s recent gains to push it back to $1.3256 first thing.

Weaker sterling will be net positive for the FTSE100, but it too was set to fall about 0.3% from Monday’s peaks.

Britain’s political wrangling didn’t stop Asia stocks from joining the year-end global rally, more U.S. officials confirmed phase one of a trade deal with China was done, even if the fine detail remained unpublished.

Shanghai, Hong Kong and Seoul all gained more than 1% and MSCI’s all-country index set another record high overnight.

It’s now up almost 23% for 2019, its best year in a decade and the fourth best year ever.

In European corporate news, UK investors will watch bank stocks after the Bank of England said yesterday it planned to tweak the rules on how much capital UK banks must hold to allow them to keep lending in an economic crisis.

The BoE designates 1% of risk-weighted assets as a “counter-cyclical capital buffer” during normal economic times, which can be used to support lending in a downturn.

On Monday, it said it would double this buffer to 2%, to take effect by the end of 2020, and then lower other capital requirements by a similar amount.

Elsewhere, an array of aero-defence suppliers such as Safran were expected to fall after Boeing announced it was halting 737 MAX production.

Boeing rival Airbus was up nearly 2% in early Frankfurt trade.

Roche won U.S. regulatory approval for a long-delayed deal to complete the $4.3 billion takeover of Spark Therapeutics.

Fiat Chrysler Automobiles is expected to meet today to discuss itsproposed merger with Peugeot.

German broadcaster ProSiebenSat.1 Media’s e-commerce arm, NuCom Group, is exploring the acquisition of Meet Group, a U.S. live-streaming app developer.

(This article has been updated to correct day to Monday in second sentence)

Editing by Larry King