Pound extends recovery amid Brexit drama

[NEW YORK] The pound rebounded further on Wednesday but its gains were capped as Brexit turmoil set the stage for a potential snap British election next month.

Global stocks rose as well, with major indices surging higher as the city's leader Carrie Lam prepared to shelve a loathed extradition bill that had sparked months of unrest.

In London, the pound shot back above US$1.22 to show an increase of almost one per cent from late on Tuesday.

Having dived Tuesday to US$1.1959 - the pound's weakest level since 1985 except for a 2016 "flash crash" - it has since rallied on rising hopes that Britain will not exit the European Union without a deal.

"Sterling was thrown a lifeline by a parliament determined to avoid a no-deal Brexit," said analyst Connor Campbell at trading firm Spreadex, but he also injected a note of caution.

"The complicating factor here, and the reason that sterling's gains... are not even greater, is the potential for a general election."

Prime Minister Boris Johnson has proposed holding a snap general election on October 15 if lawmakers vote against him late on Wednesday and force him to seek a three-month Brexit extension from Brussels.

However, later on Wednesday lawmakers rejected Johnson's motion for a general election, holding off the at least for now.

Many economists argue that a no-deal departure could hammer the British economy, which already risks falling into recession this quarter.

British business activity shrank in August, slammed by weakness in the construction, manufacturing and services sectors, a survey showed Wednesday.

The purchasing managers' index figures "are so far indicating a 0.1-per cent contraction of GDP in the third quarter," which would mean Britain had fallen into recession, noted Chris Williamson, chief business economist at IHS Markit, which compiles the data.

Britain's economy declined in the second quarter of the year, and one standard definition of recession is two successive quarters of economic contraction.

HONG KONG STOCKS SOAR

The other big story on Wednesday was in Asia, where Hong Kong's stock market surged by 3.9 per cent.

Shares rallied on the Hang Seng Index, with property and retail firms among the best performers, having taken a hiding over the past few weeks as demonstrations were increasingly marred by violence.

Later in the day, Hong Kong's embattled leader confirmed that she would permanently shelve an extradition bill that lit the fuse for three months of pro-democracy protests.

"The government will formally withdraw the bill in order to fully allay public concerns," pro-Beijing chief executive Lam said in a video statement.

Withdrawing the bill is one of the five key demands of protesters, who have taken to the streets in their millions in the biggest challenge to China's rule of Hong Kong since its handover from the British in 1997.

Meanwhile, oil prices surged as well in late European trading.

AFP