Markets: Pound pressured on Article 50 day; Firmer tone in ‘Trump Trade’ helps stocks

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● Sterling under pressure on the day UK triggers Brexit, but FTSE 100 gains
● Stock markets brighten as “Trump trade” wobble fades
● Dollar recovers some ground and Treasury yields nudge higher
● Oil prices higher ahead of US inventory data later in the day
● Gold hovers around $1,250 an ounce

The pound is under pressure after UK Prime Minister Theresa May signed the letter that triggers Britain’s divorce from the EU.

The official Article 50 exit process will begin on Wednesday in Brussels with the presentation of Mrs May’s letter to the European Council.

Sterling, which had taken advantage of a recently faltering US dollar to hit on Monday a seven-week high of $1.2615, is down 0.34 per cent in the session to $1.2406.

Its weakness is broad, shedding 0.3 per cent versus the euro to £0.8711 and easing 0.4 per cent against the Japanese yen to ¥137.77.

The decline is striking, given that the triggering of the EU divorce process was flagged well in advance.

Writes Derek Halpenny at MUFG:

Despite the very well documented and pre-announced nature of today’s key historic event the pound is weakening. However, we do not expect much in the way of a sharp sustained pound sell-off or any notable pick-up in volatility. Our bias would still be toward a stronger pound over the coming weeks as once today’s event has passed there will not be much for speculators to trade off for perhaps up to six weeks.

London’s FTSE 100 blue-chip equity index has been supported in recent months by sterling’s fall, which is seen bolstering the bottom line of the barometer’s international-focused foreign currency earners.

On Wednesday, the index is up 0.4 per cent to 7,372, not far off its record closing high of 7,430 touched last week.

Equities
London and other stock markets are getting a lift from Wall Street’s positive lead on Tuesday, when investors put behind them disappointment over the Trump administration’s failure to pass a healthcare bill, and returned to the bullish narrative of improving economic conditions and expected US tax reform.

Futures indicate the S&P 500 will start the session later on Wall Street at 2,358, shedding just half a point of the 17 gained in the previous session.

The pan-European Stoxx 600 index is climbing 0.1 per cent as energy stocks welcome further gains in oil prices.

Forex
The US dollar is adding to Tuesday’s gains as it continues to recover from the “Trump trade” wobble that saw it hit a four month trough at the start of the week.

The dollar index, which tracks the buck against a basket of its peers, and which on Monday fell below 99.0 for the first time since November 11, is adding 0.2 per cent to 99.88.
The euro is off 0.2 per cent to $1.0795 and the Japanese yen is flat at ¥111.12 per greenback.

The South African rand is again under pressure, falling 0.5 per cent to 13.0534 per dollar as investors worry that respected finance minister Pravin Gordhan might be sacked.

Fixed income
The more chipper tone across equities is dimming demand for sovereign bonds.
The US 10-year Treasury yield is up 1bp to 2.42 per cent and the equivalent maturity German Bund is adding 3bp to 0.41 per cent.

The more monetary policy sensitive US 2-year yield is little changed at 1.30 per cent after a flurry of Federal Reserve officials over the past 24 hours made comments that provided little to shift interest rate expectations.

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