Stock markets in Asia and Europe are recovering, despite the massive uncertainty caused by last week’s EU referendum
- FTSE 100 gains 3.58% in second day of rises
- Fitch predits investment shock
- Pound up, but more volatility expected
- Introduction: Markets recovering in face of political crisis
The UK’s leading index is up 219.67 points at 6360.06, above the 6338 level it closed at on Thursday before the referendum polls closed.
In fact it is the highest closing level for the index since 21 April this year.
The FTSE 100 has closed up 3.58% and has regained all its losses and more since the referendum. Chris Beauchamp, senior market analyst at IG, said:
The contrarian nature of markets has never been more apparent than in the past few days. We could all understand the selloff seen on Friday and then again at the beginning of this week, but the storming rally on the FTSE 100, which has seen the index rally over 7% from Monday’s low, is much harder to explain, other than via the usual combination of short-covering and bargain hunting.
The market has certainly been quite sanguine in its assessment of the situation, noting that, technically, nothing has really changed in the UK’s relationship with the EU, and that even negotiations about negotiations have yet to start. It is safe to say that, of all the post Brexit outcomes discussed across the City over the past few months, ‘buying frenzy’ was not one that was viewed as very likely. Today’s list of top risers is somewhat more diverse than yesterday, with miners enjoying healthy gains, although once again UK-focused names like house builders and insurers predominate.
Elsewhere a whistleblower who leaked details of corporate tax deals was found guilty of theft, writes Simon Bowers:
A former employee of PricewaterhouseCoopers has been convicted of theft after a court in Luxembourg found he was behind an unprecedented leak of controversial tax deals privately granted to many of the world’s largest corporations.
A judge in Luxembourg told Antoine Deltour he would avoid jail but must receive a 12-month suspended sentence and a fine of €1,500 (£1200). He found Deltour guilty on charges including theft and violating Luxembourg’s strict professional secrecy laws.
The Bank of England has announced that governor Mark Carney will give a speech there on Thursday at 4pm. There are no details as to what he might say, a week after the referendum, but there is of course speculation:
BOE’s Carney to speak Thursday afternoon. Subject not disclosed, but has to be Brexit impact.
Some snippets about Brexit and its fallout from the ECB’s Vitor Constancio at the central banks forum, and he thinks things could get quite bad:
Constancio: ECB Must Wait A Little Bit On Any Action — BBG
Constancio: Brexit Impact Can Be Multiplied By Confidence Effect That’s Why We Have To Discuss Whether We Need To Respond Or Not — RTRS
Constancio: We Have Used A Lot Of Our Instruments, Still Have Some Left
ECB’s Constancio: Reaction Is Not With ECB, But With Other Authorities If Downturn Severe
ECB’s Constancio: Not Feasible To Engage In Big Bargain To Change Design Of Monetary Union
Constancio Does Not Exclude Situation That Things Could Get Quite Bad
Markets continue to move higher, and could get a further boost after the US Federal Reserve releases its latest annual bank stress tests later (see here), says Connor Campbell, financial analyst at Spreadex:
Against the odds this post-Brexit rebound has carried through to a second day; not only that but, if analysts are correct, the markets may well receive a boost this evening in the form of the Federal Reserve’s bank stress test results. If the US banking sector proves its resilience in the face of the Fed’s imaginary scenarios it may reassure investors that the institutions can deal with the fallout of Britain leaving the EU, therefore extending the rebound into Thursday. If the report uncovers too many weaknesses, however, the market’s recent gains may be undermined.
More signs of a slowing US housing market.
The National Association of Realtors index for pending home sales – contracts to buy previously owned homes – fell 3.7% to 110.8 in May. Analysts had expected a fall of 1.1%, according to Reuters.
With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity. Realtors are acknowledging with increasing frequency lately that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market.
In the short term, volatility in the financial markets could very likely lead to even lower mortgage rates and increased demand from foreign buyers looking for a safer place to invest their cash.
On the other hand, any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for homebuying.
Over at the ECB Forum in Portugal a number of central bankers, including ex-ECB head Jean-Claude Trichet and former Bank of England MPC member and deputy governor Charles Bean, are discussing Brexit:
There may be warnings of a UK recession, and concerns that market volatility will continue for some time, but investors are still keen to push shares higher.
In the US, Wall Street has followed the lead of other global markets and opened sharply higher. The Dow Jones Industrial Average is currently up 145 points or 0.85%, while the S&P 500 opened 0.7% better and Nasdaq 0.8% better.
Stock markets are staging a remarkable rally today, as investors manage to put aside worries about Britain’s Brexit crisis.
The FTSE 100 index is up 135 right now, a gain of 2.2%. That means it is positive for 2016 again, and only around 60 points below last Thursday’s figure, when Britain headed to the polls.
almost everything “dead-cat-bounced” to pre-Brexit levels. #GBP still lagging.
“Any investors who think the markets have calmed down should think again. It is far more likely that we are in the eye of the storm,”.
The FT is reporting that the Bank of England had a little chat with the bosses of Britain’s largest banks today.
BoE officials gave the bosses of big British banks a supportive message about the amount of liquidity in the system, while pressing them to keep lending to consumers and companies to avoid a repeat of the “credit crunch” that hit after Lehman Brothers failed in 2008, according to a person briefed on the meeting.
Bank chiefs called to BoE to discuss Brexit impact https://t.co/J8QRDqDTPD
Over in Brussels, Greek prime minister Alexis Tsipras is making a new push against Europe’s austerity measures:
Listen to this. Greek PM Tsipras demanding that the democratic and social ‘deficit’ in the EU is addressed. pic.twitter.com/4omCW2fHPi
A nice bit of history here:
An illustrated history of the pound sterling 1791-2016: pic.twitter.com/8BFTi0nvgM
The Brexit uncertainty has also driven investors to buy more government debt, as it is a standard ‘safe haven’ during times of crisis.
That forced prices higher, meaning that the yield on 10-year government bonds has hit a fresh record low – at under 0.6%.
Chris Giles, the FT’s economics editor, has just published an impassioned plea to Leave campaigner Boris Johnson to stop dithering, for the sake of the country.
He warns that Britain is sinking into recession while the man who helped win the referendum, and who now hopes to become prime minister, wonders what to do next.
Boris Johnson’s Vote Leave lieutenants blame their vanquished foes for the absence of a plan. It sounds like a joke, because it is a sick joke. Officials in government cannot plan what to do next until they have a policy to follow. That is how Britain works, Mr Johnson. Officials advise, politicians decide.
The man who hopes to head the government within weeks has not decided his policy for leaving the EU. He is even less prepared to enter Number 10 than Gordon Brown was. Of course, we all know why Mr Johnson has not stated what sort of Brexit he favours because any choice he makes will be a betrayal.
US shares are expected to rise when Wall Street opens, in an hour’s time.
It’s being called the ‘Brelief rally’ — but investors should remember to be cautious, given these warnings of a UK recession….
+++ FTSE 100 up 2% at 6270, £ sterling up 0.3% to $1.35. They are calling it, somewhat daftly, the Brelief rally
Could another European Union member ‘do a Britain’ and hold a referendum?
Mujtaba Rahman, analyst at Eurasia Group, reckons not – even though Brexit has given populist parties a lift (Marine Le Pen was particularly chuffed yesterday).
Despite the noise, we don’t believe there is an immediate risk of a ‘copy-cat’ referendum taking place in another EU member on the heels of the UK vote. Even if we are wrong, it would very unlikely pass. But in a handful of countries, populist Eurosceptic parties have gained sufficient momentum to ensure EU membership and referenda will be a prominent feature of the domestic political debate, particularly around elections (France, Denmark and Italy). Directly or indirectly, this will influence government policy.
Only in the Netherlands and Austria is there a concrete risk of referenda over EU or euro membership, though even in these states, we view it as something of a remote possibility.
We would change our mind if there was a major escalation of migrant inflows and/or a major new economic downturn affecting sovereign debt markets to the point it triggers the need for more bailouts.
JP Morgan have also issued an interesting note on Brexit.
It predicts that David Cameron’s successor will ask MPs to vote on whether to Trigger Article 50 of the Lisbon Treaty, and implement the result of last week’s referendum.
Very useful guide from Malcolm Barr of JP Morgan on what happens next in the Brexit saga (is it a “saga” yet?) pic.twitter.com/A7wmbLvYwa
JP Morgan: “Our base case is that Scotland will vote for independence and institute a new currency at that point” pic.twitter.com/v8Or7OXWDI
Here are a couple of charts from Fitch’s latest report on Brexit:
Fitch, the rating agency, has issued another dire warning about the impact of the EU referendum on the UK economy.
In a new report, Fitch predicts a “large investment shock”, as businesses struggle with the implications of the Brexit vote.
Businesses are facing a surge in uncertainty on three separate fronts – the future of the UK’s trading relationship with the EU, the shape of the regulatory framework, and domestic political uncertainty, including the future status of Scotland. This uncertainty will prompt firms to delay investment and hiring decisions, while elevated financial market volatility will further damage business confidence.
In addition to less favourable access to the European Single Market, reductions in trade openness and inward foreign direct investment could harm productivity performance, while reduced immigration would slow labour supply and potential GDP.
These negatives will likely outweigh any GDP gains from deregulation outside the EU or the redirection of EU budget transfers.
The Economist Intelligence Unit are also predicting that Britain will slide into recession next year.
Goldman Sachs have also responded to the report that it has ‘pre-rented’ office space in Frankfurt:
“We have not made any changes to our real estate requirements in Frankfurt as a result of the referendum result.
As we have already communicated to our employees, there is no immediate change to the way we conduct our business or where we conduct our business.”
Britain’s economy will fall into recession next year, according to Sam Tombs of Pantheon Economics:
Morgan Stanley has denied that it has rented office space in the German financial capital (as bankers heard this morning).
A spokesman tells us:
“Morgan Stanley does not have pre-let office space in Frankfurt, or anywhere else.”
Economic confidence across the eurozone has taken a dip, even before the UK’s referendum result.
The eurozone’s headline economic sentiment measure has fallen to 104.4 in June, from 104.6 in May. That may suggest that growth is slowing; bad news for a region facing months of uncertainty.
Eurozone growth to slow as confidence falters before Brexit vote https://t.co/VrfR0K69K4
Atradius, which provides credit insurance, has predicted that the Brexit vote will wipe out some businesses.
In a new report, it predicts:
The Brexit crisis is looming over UK bankers as they gathers for a conference in London.
City minister Harriet Baldwin told the British Banking Association’s event that London’s financial sector will survive:
“The City of London will be diminished” Bisseker says. “People will care when it hits them”. 15% fall in UK house prices “not unrealistic”
Banks’ earnings to lose 25/30pc as result of brexit according to schroder’s Justin bissiker. #BBARetailConf
Goldman and Morgan stanley have pre-rented offices in Frankfurt as contingency if cannot get right deal for London #BBARetailConf is told
Analysts at Credit Suisse are speculating that last week’s vote may not be the end of the matter….
Credit Suisse sees a 30% chance of a 2nd referendum pic.twitter.com/ep89vRMr9P
Joshua Mahony, market analyst at IG, says today’s rally is a surprise – some in the City had expected heavy losses after the Brexit vote.
A disconnect is appearing between the pessimistic mood that is permeating the media and the insatiable optimism that seems to be driving yet another day of gains in the FTSE100. For many, the widespread selling that dominated the financial markets in the immediate wake of Friday’s referendum result was expected to persist, providing one of the deepest corrections for years.
However, there is a confidence within the City that perhaps the implications to this vote may not be as immediate nor far reaching as many initially thought, providing opportunities for bargain hunters to grab shares at a discount.
Shares in London are climbing steadily this morning.
“Stocks and the pound are continuing to firm but the post-Brexit reality will bite sooner or later.
What we’re seeing in the FTSE is hope in Britain being able to ride it out by remaining part of the single market. This looks like wishful thinking.
Greene King, the pub chain, has warned that consumer spending will probably suffer as Britain falls deeper into Brexit uncertainty.
CEO Rooney Anand has told the City that:
“The increasingly uncertain trading environment is likely to weigh on consumer sentiment in the near term.”
Just in: British consumer credit has expanded at the fastest annual pace since 2005 in May, in the run-up to last week’s referendum.
Telegraph business editor Ben Wright explains why Brexit could be such bad news for the City, and thus the rest of the UK:
LSE boss @xrolet has said he thinks 100k City jobs could go post-Brexit. That would mean £10bn in lost tax and £32.5bn in lost output.
The recent stabilisation in the value of the pound is unlikely to last, warns currency expert Jane Foley of Rabobank.
Speaking on Bloomberg TV, she warns that the current Brexit uncertainty is bad for investment and bad for UK businesses, and thus not great news for the national currency.
“We have political uncertainty and probably recession – that isn’t something that sterling should celebrate….
Sterling faces a huge amount of volatility, and we possibly haven’t seen the lows yet.”
Finland’s former finance minister, Alex Stubb, has experienced plenty of European rough-and-tumble .
He reckons Brexit is currently in the ‘chaos’ phase, but will eventually move forwards…
Reminder of how the EU advances:
3. Sub-optimal solution
In #Brexit we are now in phase 2. Will take a while to get to 3.
Accurate, but misses:
* Legacy of 3s feeds into each successive 1.
* Pattern may break if multiple/simultaneous 1s. https://t.co/Nu4JTlLpzh
Mario Monti, the former European commissioner (and one-time technocratic Italian PM), has warned the UK it can’t get access to the single market without accepting the free movement of people:
Our Politics liveblog is tracking the fallout from last night’s EU summit meeting, and the race to become Britain’s next prime minister.
The UK car industry is hoping that Britain retains access to the European single market.
A new report shows that the industry enjoyed a record year, partly due to the ability to sell vehicles without tariffs across the EU.
Life is continuing in Brussels without the UK today, as the other 27 leaders sit down sans Cameron.
It’s unclear whether today’s rally is a dead-cat bounce or a genuine recovery, says Mike van Dulken of Accendo Markets, a City trading firm.
European stock markets are a sea of green this morning, as shares rally across the continent:
In the City. shares are rallying at the start of trading, as we predicted.
In London, the FTSE 100 index has jumped by 110 points, or 1.8%, to 6251.
London’s FTSE-100 is once again surging higher in early trade, as the air of panic that gripped global markets in the wake of that Brexit vote continues to ebb.
UK house price inflation has picked up this month, according to Nationwide.
“Nationwide’s June data gives a snapshot of the housing market immediately before the Brexit referendum.
“It shows a functioning market with decent price growth but limited supply – a languid calm before the storm.
Japan’s prime minister has urged his central bank to ensure ample funds are available to help Japanese companies ride out the Brexit shock.
Shinzo Abe told the Bank of Japan that it must do everything in its power to prevent any credit squeeze, as:
“A sense of uncertainty and worry about risks remain in the markets.”
The pound is also looking quite stable this morning, hovering around the $1.335 mark in early London trading.
But Nordea analyst Aurelija Augulyte reckons sterling is poised to move sharply soon, either higher or lower.
Global stock markets are shaking off the worst of the Brexit panic today, despite massive uncertainty over the UK’s political and economic future.
So I am thinking of joining the Tory Party, the Labour Party and the FA, to make sure I have a vote on who leads this country
Returning from Brussels like… pic.twitter.com/IbAef9RrbK