Dubai: It will be a tale of two cities in equities markets this week, analysts believe, as London prepares for Brexit while Wall Street eyes new highs.
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In the United States, both the S&P 500 and Nasdaq indices are in the best of times as they inch close to their all-time highs, while in the United Kingdom, investors are seeing the worst of Brexit as uncertainty continues over whether the exit will be delayed or not.
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The uncertainty in the UK comes after Prime Minister Boris Johnson on Saturday asked the European Union to delay Brexit, following a vote to do so by Parliament, but sent a second letter arguing against a delay.
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He said that the UK now faces either a delay in Brexit from its October 31 deadline, or a small concession from Johnson to appeal to members of Parliament who voted for a delay.
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“I still believe it’s possible for the UK to leave on October 31, but the clock is ticking. These kinds of decision usually happen in the last minute,” said Charles-Henry Monchau, managing director for investment management at Al Mal Capital.
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In that case, sterling could find some support, especially considering that it is already undervalued. The currency is now trading at $1.2984, and Monchau says he believes it should be between $1.3 and $1.4,
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“The worst thing for the pound is the uncertainty, so whatever happens for the UK now, at least there’s a light at the end of the tunnel,” he said.
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Han Tan, market analyst at FXTM, pointed that from the technical side, news on a deal passing could push the sterling “well above” $1.30, while negative news could bring the $1.22 support level in focus.
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In the US, many listed companies are expected to be reporting their earnings this week, and if they exceed relatively-low expectations, that could trigger the main indices to push through to all-time highs.
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