Time to wrap up after a hectic day in the City.

Our UK Politics Live blog is continuing to monitor all the Brexit news:

And for trade war developments, keep an eye on our US Politics Live blog (which also has the latest on the impeachment drama and the search for Donald Trump’s tax records).

Goodnight! GW

Today’s market moves show that the City believes a Brexit deal is rather more likely.

But, as Ken Odeluga of City Index writes, we don’t know what’s now being discussed -- or if enough MPs will support.

Odeluga says:

This renewed enthusiasm for talks can really only mean that there’s something new to talk about; a new concession, and it must have come from Prime Minister Boris Johnson. Reports point to something linked to customs, what else? Whatever that something is obviously hasn’t been disclosed. Yet only a kind of ‘shadow backstop’ that can be defined by the UK as ‘not quite the backstop’ will really cut the mustard. Briefings by Downing Street today have suggested Britain may now be open to a simple majority endorsement of any deal by Northern Ireland, instead of the Irish veto Johnson initially proposed. That would also be cogent with a ‘backstop prequel’, along the lines of its initial form from February 2018. The EU noted on Friday that its position on the backstop hasn’t changed. Still, it’s worth noting that a ‘time-limited’ backstop has been rallying quite sharply this week, on both sides.

At this stage, it remains touch and go whether Brexit-supporting Conservatives will support such a plan, having consistently rejected any notion of an Irish border. The former rebels have buttressed the PM from the worst effects of his loss of control over Parliament but may now become less reliable. How the rest of the House will take such plans is just as uncertain, as is the response from the small Northern Ireland unionist party that has played an outsize role in underpinning the Tories.

David Madden of CMC Markets says City traders are hopeful that Brexit progress is being made:

The optimism surrounding Brexit has given British banks a boost as UK government bond yields have ticked up. Bank’s lending margins usually improve in an environment of higher bond yields, hence why RBS, Lloyds, Barclays and HSBS are higher today.

The fear of a disorderly Brexit has been hanging over the property sector. In light of the upbeat sentiment, traders are snapping up Bovis Homes, Persimmon, Taylor Wimpey, in addition to Berkeley Homes.

Chris Giles of the Financial Times makes an important point -- Boris Johnson appears to be trying to take Britain out of the EU with a harder Brexit than under Theresa May’s deal.

And that, according to the government’s own forecasts, means it will have a more severe impact on people’s wealth.

Economists at German bank Berenberg say that a Brexit deal would be better than crashing out of the EU... but still more disruptive than staying in the EU.

In a note to clients, they say:

• Short-term boost from a deal: By bringing more than three years of uncertainty to an end and preventing a hard Brexit, a deal by the end of the month would be a big positive for the UK and a modest gain for EU27 economies. UK real GDP would likely accelerate from the current sub-1% annualised rate to above 2%. The relief of an orderly Brexit would encourage firms to unleash pent-up investment and households to step-up discretionary spending. This would more than offset some scaling back of inventories built up to cushion potential hard Brexit disruptions.
  
  
• Watch the hard Brexit risk: If no deal is struck and Johnson won a majority of seats in snap elections later this year, a no-deal Brexit would be the most likely outcome. In this case, the UK would be at risk of a recession. Disruption to trade and labour flows at the UK-EU border, plus a likely drop in foreign investment into the UK, would strike a major blow to supply. A further fall in sterling would drive up import prices and squeeze real demand. The recession would probably remain shallow, though, as Johnson would throw money at the problem, storing up fiscal trouble for later.
  

The scale of today’s stock market rally in London is quite remarkable, as The Wall Street Journal’s James Mackintosh points out:

April 2009 was a month after the FTSE 100 had sunk to a six-year low, after the Great Financial Crisis. The index has roughly doubled in value since.

Back in the US, Donald Trump has just tweeted that any trade deal with China won’t need to be approved by Congress - he can just sign it himself.

The pound just hit $1.27, a new three and a half-month high.

I suspect some traders who had shorted sterling are now racing to close those bets (taking a hefty loss).

Shares in Apple have just hit an all time high after Donald Trump’s tweet, jumping 1.6% to $233.86.

Donald Trump has just tweeted that “good things” are happening at the trade war talks in Washington -- further raising hopes of a breakthrough today.

The European banking sector is having a stonking day, up 4.3% so far. UK and Irish financial stocks are leading the rally.

Today’s surge back to $1.264 means the pound is at its highest levels since 1st July, when Boris Johnson and Jeremy Hunt were tussling for the leadership of the Conservative Party.

Some EU diplomats are warning against undue exuberance, just because intensive ‘tunnel’ negotiations are underway.

In Dublin, the Irish stock market is on an absolute tear, up almost 4% today.

The banking sector is up 8%, while industrial companies have gained 6.6%. Housebuilder are also among the top risers.

That all illustrates that traders feared the impact of a no-deal Brexit on the Republic’s economy.

Professor Costas Milas of the University of Liverpool has kindly sent over a graph, showing how economic uncertainty has hurt the pound in recent years.

He explains:

Policy uncertainty growth spiked during the EU Referendum and then receded during Mrs May’s negotiations. It accelerated again when Boris Johnson took over as Prime Minister in July 2019.

Signs of a breakthrough yesterday and today have lowered uncertainty growth and supported sterling. Fair to say that policy uncertainty is the main driver of our currency, whatever other economic fundamentals might suggest!

[UK policy uncertainty is measured by discussion of policy uncertainty in 650 UK newspapers].

There’s “nothing like a deadline to focus the mind,” says Neil Wilson of Markets.com, as he watches the pound surge higher today.

Sterling soared as the EU 27 gave the green light for ‘tunnel’ negotiations to take place. Michel Barnier has the go-ahead from member states and, vitally, Ireland on the final stage of negotiations to take place behind closed doors.

But he also points out that there are still some “considerable barriers” before a deal is drawn up, let alone agreed by Westminster MPs.

Of course this rally is built on shaky foundations and is susceptible to a crash if the negotiations don’t produce a deal for MPs to vote on.

The rally over the last two days has been astonishing - up four big figures in less than two sessions, it’s on course for one of its best two-day rallies in about 25 years.

Ranko Berich, head of market analysis at Monex Europe, says the pound could hit $1.30, if a Brexit deal is reached.

But it could also plunge very sharply indeed if talks collapse, he warns:

“Sterling has reached a three month high against the US dollar, extending yesterday’s rally, which at 2% against the US dollar was impressive in its own right.

“There’s nothing complicated about the sterling rally we’ve seen over the past two days: no deal risk has fallen, and the pound has rallied accordingly. From our perspective there are two key takeaways from this week’s price action; firstly that marginal changes in no-deal risk still have a dramatic effect on sterling and secondly, that at this point the market’s estimation of no-deal risk is actually very low. Therefore, if talks collapse the sterling reaction will be seismic.

My colleague Daniel Boffey in Brussels has the latest on the Brexit talks:

Michel Barnier, the EU’s chief Brexit negotiator, has secured the agreement of the EU27 to open intensive “tunnel” negotiations on Boris Johnson’s latest proposals in a major boost for the British government.

Sources said ambassadors representing the EU member states had given the “green light” to accelerated negotiations, in the hope of agreeing terms by next Thursday’s summit.

The details of Johnson’s latest suggestion to the EU are yet to emerge. The development came shortly after Donald Tusk revealed that he had set Johnson an ultimatum of presenting new Brexit proposals by Friday or “no more chances”, but said “positive signals” were now emerging.

Shares in UK banks and house-builders are also rallying even harder, after the EU gave the green light for new, intensive talks.

Royal Bank of Scotland is now up 14%, which is good news for the taxpayer as it owns 62% of it.

Brexit optimism has also swept Barratt Development and Taylor Wimpey up by 10%.

However, the multinationals companies that make up much of the FTSE 100 have fallen, as the stronger pound undermines the value of their overseas earnings.

Thus, the FTSE 100 is only up 30 points, or 0.4%.

But the FTSE 250, which is a better guide to the UK economy, is now up by 3% - a major move.

There must be a danger that the City is getting carried away today, as it drives up the pound.

Although there are encouraging noises from London, Brussels and Dublin, a new Brexit agreement hasn’t been reached yet. And if Boris Johnson is moving towards some kind of Northern Ireland-only backstop, he’ll struggle to persuade unionist MPs to back it.

The BBC’s Katya Adler, wisely, urges caution:

Britain’s FTSE 250 index, which contains plenty of medium-sized, UK-focused companies, is absolutely soaring today.

It’s gained 461 points, or 2.4%, taking it back to 19,698 -- a one-week high. Reuters says the FTSE 250 is on track for its best day since July 2016.

Marks & Spencer is leading the rally, up almost 10%, with budget airline easyJet up 9% and housebuilder Crest Nicholson gaining 9.1%. They’re all very exposed to consumer confidence and spending, so would be hit by a no-deal Brexit.

The US stock market is expected to open sharply high too, on hopes of a breakthrough in the trade talks with China.

The Dow Jones industrial average is tipped to gain around 1% at the open, or 248 points, adding to the 150 points added yesterday.

Traders are in cheery mood, after Donald Trump said yesterday’s talks went well and that he’d meet China’s vice-premier today.

Nish Parekh, managing director of market risk solutions at Silicon Valley Bank, reckons the pound will keep rallying if we hear more optimism from Brussels today.

UK Brexit secretary Stephen Barclay and EU chief Brexit negotiator Michel Barnier could give a press conference shortly, after a long meeting this morning.

Parekh says:

“Brexit emotions are running high as GBP whipsawed while Barnier and Barclay discussed the details of a potential deal. Cable broke $1.2500 as Tusk sees ‘positive signals’ on an agreement being reached.

Yesterday’s price action demonstrated how bearish the market actually was. Expect an extension to the sterling rally if today’s news continues the bullish trend.”

Shares in UK banks and housebuilders are surging even higher, gaining up to 7% this morning.

Traders are rushing to buy equities after Donald Tusk told reporters in Nicosia that “We have received optimistic messages that there could be a deal.”

China’s foreign ministry is being coy about the chances of a trade war breakthrough today.

Foreign Ministry spokesman Geng Shuang told reporters in Beijing that he hoped China can work with the United States for progress on trade consultations, without revealing how yesterday’s negotiations went.

The South China Morning Post reports that negotiators did agree one thing on Thursday -- where to get lunch from. Several bags of takeaway food from Clyde’s, as Washington restaurant, were spotted arriving at the Office of the United States Trade Representative on Thursday.

The two sides have previously used food diplomacy as a sign of goodwill. In March, vice-premier Liu He knocked back a hamburger while trade representative Robert Lighthizer had stir-fried chicken with aubergine -- seen as a nod to each other’s culture. That didn’t stop the talks collapsing like a disappointing souffle in May, though.

European stock markets have all risen in early trading, with the notable exception of London.

The hope medicine is doing its job, lifting Germany’s DAX by 1%, and France and Italy both up 0.3%.

Technology stocks are leading the rally, reflecting optimism that the US and China could be inching towards a trade deal.

Britain’s FTSE 100 has dropped into the red, down 14 points, despite the jump in banks and housebuilders sales. Shares in some major multinational companies are falling, due to the surge in sterling (which makes their overseas earnings less valuable).

So Astrazeneca, GlaxoSmithKline, Unilever and Reckitt Benckiser are all among the top fallers, along with advertising giant WPP (also hurt by a profits warning from rival Publicis) and Burberry (knocked by poor results from Hugo Boss).

Donald Trump’s claim that trade negotiations with China went “very well” yesterday has lifted stock markets across the Asia-Pacific region.

China’s Shanghai Composite has gained 0.9%, as has Australia’s S&P/ASX 200. Japan’s Nikkei has risen by 1.15%, as optimism lifts equities at the end of another volatile week.

Brexit optimism has pushed the pound sharply higher against the euro too, over €1.13 for the first time in a fortnight.

But will the rally last? Ipek Ozkardeskaya, Senior Market Analyst at London Capita Group, fears it could unravel:

How exactly the leaders plan to solve the Irish customs puzzle remains blurry.

Boris Johnson proposed limiting custom checks away from the Northern Ireland border, while Varadkar responded that any custom checks inside Ireland would threaten the peace within his country. Dismissing custom inspections in Ireland would mean that goods could be smuggled from the UK to the EU and vice versa. One possible solution to avoid that would be leaving Northern Ireland out of the UK’s custom zone. But this would see a solid resistance from many policymakers, especially from Democratic Unionists.

We do not want to be a wet blanket, but the optimism over yesterday’s statement could rapidly fade, if the European leaders don’t adhere to what Irish Times called a ‘very significant movement’ on the Irish border enigma.

Today’s UK newspapers are dominated by the apparent Brexit breakthrough between the UK and Ireland yesterday. My colleague Kate Lyons has rounded them up: