Brexit legal challenge and tight US election send financial markets on rollercoaster

A legal stumble for Brexit and fears of a tight US election have left world financial markets on a rollercoaster.

File image. Source: AAP

Global equity prices drifted lower on Thursday as worries about the U.S. presidential election continued to weigh on investor sentiment, while sterling rose after a UK court ruled that the British government needed parliamentary approval to trigger Brexit.

US Treasury prices slipped after the Bank of England scrapped plans to cut interest rates and projected higher inflation, and oil prices remained weak on skepticism about OPEC's planned production limit.

MSCI's 47-country "All World" index .MIWD00000PUS, was down 0.24 per cent, dragged down by weakness on Wall Street.

US stocks, which started the day steady after the UK court ruling eased worries that Prime Minister Theresa May's cabinet is set on a "hard" exit from the EU, failed to hold gains.

The S&P 500 .SPX was on track to close lower for an eight day, the index's longest losing streak since the financial crisis of 2008.

Facebook (FB.O) shares fell as much as 6 per cent and were the biggest drag on the S&P and the Nasdaq, a day after the social media giant warned that revenue growth would slow this quarter.

"Stocks are going to be more volatile and will move sideways with a slight downward bias until next week because the election seem incredibly tight and there's a lack of political visibility," said John Brady, managing director at R.J. O’Brien & Associates in Chicago.

"The market is nervous, and in the short-term people will move to the sidelines," he said.

Investors have been unnerved in recent days by signs that the US presidential race between Democrat Hillary Clinton and Republican Donald Trump was tightening just days before the vote on Tuesday.

The CBOE Volatility Index .VIX, a gauge of near-term investor anxiety, rose 11.5 per cent to its highest level since late June.

The Dow Jones industrial average .DJI fell 4.65 points, or 0.03 per cent, to 17,954.99, the S&P 500 .SPX lost 5.8 points, or 0.28 per cent, to 2,092.14 and the Nasdaq Composite .IXIC dropped 34.22 points, or 0.67 per cent, to 5,071.34.

The pan-European STOXX 600 ended flat, giving up early gains as a strengthened pound weighed on the shares internationally exposed companies including Diageo (DGE.L).

The sterling surged to a four-week high after the UK court ruling soothed concerns about Brexit and the Bank of England scrapped plans to cut interest rates.

Sterling climbed as much as 1.5 per cent to hit $1.2494 GBP=D4, its strongest since October 7.

Meanwhile, the US dollar hovered near multi-week lows against a basket of major currencies, on uncertainty surrounding the outcome of the US presidential election, ending a morning reprieve that saw the dollar stabilise.

"Most polls are still showing that it's far too close to call, and that's ultimately what's keeping investors nervous," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"We're now seeing markets price in a higher risk of a Trump presidency."

The dollar index .DXY, which measures the greenback against a basket of six major rivals, was down 0.26 per cent to 97.149.

In bond markets, US Treasury prices dipped, with long-dated bonds underperforming, after the Bank of England scrapped plans to cut interest rates and indicated that inflation is likely to rise further.

The BoE ramped up its forecasts for growth and predicted that inflation would jump to 2.7 per cent this time next year, nearly triple its current level.

Benchmark 10-year notes US10YT=RR were down 4/32 in price to yield 1.81 per cent, up from 1.80 per cent late on Wednesday.

Oil prices extended their recent slide as investors fretted over a record weekly surge in US crude inventories and many remained sceptical about whether OPEC will actually implement its planned output cap.

Brent crude LCOc1 settled down 51 cents, or 1.09 per cent, at $46.35 a barrel, and US crude CLc1 settled down 68 cents, or 1.50 per cent, at $44.66.

Gold edged higher in response to the lower dollar and also uncertainty about the outcome of the US presidential race.

Spot gold prices XAU= were up 0.31 per cent to $1,300.93.

Australian market set to open lower

The Australian dollar has strengthened further against its US counterpart, helped by increased commodity prices.

At 0700 AEDT on Friday, the local unit was trading at 76.82 US cents, up from 76.68 cents on Thursday.

The Aussie dollar, which rose against the greenback on Thursday thanks to positive local trade figures and solid Chinese services data, was lifted back toward the 77 US cent level it breached in October.

"The weaker US dollar plus high iron and coal prices are underpinning the AUD, targeting a break above 0.7690 today," Westpac strategist Imre Speizer said.

Mr Speizer still expects the Australian dollar to weaken against the US in the medium term, especially if the US Federal Reserve lifts its central interest rate in December.

The local unit was also stronger against the yen and the euro, but slipped to 61.67 British pence after the UK currency strengthened on the back of a shift by the Bank of England to a neutral stance from a dovish one on inflation targets.