European markets traded higher amid worries that the U.K. could leave EU without a trade deal in place
European stocks traded higher on Tuesday morning, while the pound dipped amid worries that Britain’s new prime minister could lead the country into a no-deal exit from the European Union.
The pan-European Stoxx 600 was up by around 0.8% by mid-morning, auto stocks soaring 3.8% to lead gains while retail stocks slipped 0.5% as one of only three sectors in the red.
Sterling edged 0.3% lower against the U.S. dollar Tuesday morning, slipping to $1.2439 during morning trade. It comes as investors brace for the result of the Conservative Party leadership contest.
Britain’s ruling party is set to announce that either former London mayor Boris Johnson — widely regarded as the strong favourite to enter Downing Street — or Foreign Minister Jeremy Hunt will succeed Theresa May to become the new leader and prime minister.
The outcome of the weeks-long ballot of about 160,000 Conservative Party members is scheduled to be revealed shortly before midday, with the winner set to officially become prime minister on Wednesday.
Some market participants are concerned Johnson could pull the U.K. out of the bloc on October 31 without a trade deal in place in order to appease hard-line anti-EU members of the party.
Johnson has insisted the U.K. must leave the EU by the October 31 deadline “come what may,” while Hunt has said he would be prepared to further delay the withdrawal process, if required, to secure a new divorce deal.
Elsewhere, global stocks appeared to receive support from expectations that the European Central Bank (ECB) and the Federal Reserve could soon cut interest rates. The ECB is seen cutting rates by 10 basis points on Thursday, with the U.S. central bank expected to lower rates by 25 basis points at the end of the month.
Shares of French auto parts maker Faurecia climbed 9% after it missed expectations but maintained first-half profitability despite a China-led decline in auto production, while fellow parts makers Hella and Valeo both jumped more than 5.8%, driving the European automotive sector higher.
BMW also climbed 4.5% after Morgan Stanley upgraded its stock, while shares of Porsche, Volkswagen, Daimler and Continental all climbed more than 4% to further contribute to the automotive surge.
Chipmaker stocks also saw a windfall on Tuesday, led by Apple supplier AMS, which saw its stock rise 4.8%, slightly paring early gains after it beat revenues and issued optimistic guidance for the third quarter of 2019.
Bank stocks are also high on the agenda, with UBS shares trading 2.2% higher after the Swiss giant beat forecasts with a second-quarter net profit of $1.4 billion. Santander shares were up more than 3% after it slightly beat expectations despite a net profit decline of 18% due to restructuring costs.