This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2016/jun/27/property-and-financial-shares-slide-as-referendum-fallout-hits-stock-markets

The article has changed 8 times. There is an RSS feed of changes available.

Version 3 Version 4
Sterling falls to fresh 31-year low as banks and builders slide UK loses triple-A credit rating in wake of Brexit vote
(about 3 hours later)
Sterling has slid to a fresh 31-year low and shares in housebuilders and banks have sustained more heavy losses as the economic and political ramifications of the Brexit vote continued to rattle markets. The UK has been stripped of its last AAA rating as credit agency Standard & Poor’s warned of the economic, fiscal and constitutional risks the country now faces as a result of the EU referendum result.
The pound remained under pressure on the foreign exchange markets on Monday despite attempts by the chancellor, George Osborne, to soothe nerves, insisting Britain was “ready to confront what the future holds for us from a position of strength”. The two-notch downgrade came with a warning that S&P could slash its rating again. It described the result of the vote as “a seminal event” that would “lead to a less predictable stable and effective policy framework in the UK”. The agency added that the vote to remain in Scotland and Northern Ireland “creates wider constitutional issues for the country as a whole”.
After initially gaining some ground, sterling fell more than 4% against the dollar to $1.3151, its lowest level since 1985. Against the euro it was down to €1.1983, its lowest point since March 2014. S&P was the last of the big three ratings agencies to have a blue-chip rating on the UK’s credit-worthiness. Moody’s, which stripped the UK of its top notch rating amid the austerity cuts of 2013, said last week it might further cut its view of the UK.
Turmoil on global markets on Friday wiped $2tn from share prices, the largest ever one-day fall, surpassing even the darkest days of the 2008 banking crisis. Rating agency moves have the potential to make it more expensive for the government to borrow.
Osborne’s words on Monday gave investors some confidence to buy gilts - UK government bonds. The yields on gilts, which move inversely to prices, fell below 1% for the first time, amid expectations that the Bank of England would cut interest rates from their current low of 0.5% to zero. The S&P move came after another torrid day on the financial markets. The pound hit fresh 31-year lows and £40bn was wiped off the value of the UK’s biggest companies on Monday despite efforts by George Osborne to quell investors’ concerns about the economic and political ramifications of the Brexit vote.
The Bank of England governor, Mark Carney, has abandoned plans to fly to Portugal this week for a meeting with fellow central bank governors and policymakers. He will remain in the UK to oversee the response to the crisis. After three days of silence in the wake of the referendum, the chancellor made a statement on Monday morning in a bid to calm the markets. However, sterling remained under sustained pressure on the foreign exchange markets as economists slashed their forecasts for UK economic growth. Wall Street was also weaker while continental bourses sold off sharply after Friday’s record $2tn of losses on global stock markets.
The FTSE 100 extended its losses, falling 2%, or 124 points, to 6,015 as New York markets opened. The Dow Jones index was down 1.3%. Expectations are now mounting that the Bank of England will cut interest rates - possibly to zero from their historic low 0.5% - to stimulate the economy, and yields on government bonds fell below 1% for the first time, which could spell cheaper mortgage rates.
There were some hefty fallers in London: easyJet was one of the biggest as the short-haul airline warned profits would be lower than expected because of the impact on consumer confidence. Its shares slumped 24% to a three-year low of £10.02. In a live broadcast just after 7am, as dealers in London braced for another day of turmoil, Osborne insisted: “our economy is about as strong as it could be to confront the challenge our country now faces”.
Shares in banks fell sharply, adding to the losses on Friday. Barclays slumped by 11%. The bailed-out Royal Bank of Scotland and Lloyds Banking Group were also among the top 10 fallers, as the market reckoned the government’s attempt to sell off its remaining stakes had now stalled. RBS was down 25% at one point – its lowest level since February 2009. Lloyds was down 9% at 51p. But moderate losses on the FTSE 100quickly deepened and at one point sterling was down 3.5% against the dollar, at $1.3122, its lowest level since 1985. Against the euro, the pound was down 2.4% at €1.19.
Housebuilders and companies reliant on providing supplies to the housing market were also lower. Taylor Wimpey, Persimmon and Barratt Developments have lost 40% in two days. Speaking at the World Economic Forum in China, Nouriel Roubini, economist at New York University, described Brexit as “a major significant financial shock” which would create “a whole bunch of economic, financial, political and also geopolitical uncertainties”.
Outside the FTSE 100, shares in the estate agent Foxtons were down 22% after it spelt out the impact of Brexit on the high end of the property market. By the end of trading, the FTSE 100 index was down 2.6% - or 156.5 points - and below 6,000. The FTSE 250 - the next tier of companies and more closely tied to the UK economy - was down 7%, coming on top of a 7% fall on Friday.
The FTSE 250 index, which comprises companies more closely linked to the UK economy than the multinational-heavy FTSE 100, was down 6%. Virgin Money was off 21%, while other challenger banks were also sharply lower such the newly floated Clydesdale. The headhunters Hays, engineering company Balfour Beatty, online supermarket group Ocado and building group Redrow were also lower. “It’s been another dramatic day of trading on the UK stock market,” said Laith Khalaf, senior analyst at financial firm Hargreaves Lansdown.
Analysts said the chancellor’s intervention had helped to calm some nerves, at least initially, although he faced criticism from Mervyn King, the former Bank of England governor, who said the Treasury would need to row back from exaggerated claims during the referendum campaign that had left him “baffled”. Companies likely to be hit by a Brexit-induced recession were hit hard. In two days, some £40bn has been wiped off the value of banking stocks and £8bn off house builders. At one point, shares in the bailed-out Royal Bank of Scotland plunged 25% while housebuilders such as Persimmon and Taylor Wimpey have lost more than 40% in just two trading days.
Even so, analysts have been cutting their forecasts for UK growth, including Goldman Sachs, which now forecasts 0.2% growth in 2017, down from 2% predicted previously. Michael Hewson, chief market analyst at CMC Markets, said that while Osborne’s statement had been measured his comments “were unable to prevent the feeling that UK politics remains in a state of paralysis, with no clear contingencies in place to deal with the fallout of a leave vote.”
The delay to invoking article 50 – the formal process by which the UK withdraws from the EU – was welcomed by the employers’ body the CBI. “Never has there been a more important time to put the interests of the country ahead of party politics,” said Carolyn Fairbairn, its director general. The biggest faller in the FTSE 100 was budget airline Easyjet which plunged by 22% after warning that wary consumers would now rethink their travel plans. Exchange rate movements, the carrier added, would add £25m to costs.
She called for the government “to preserve the openness of the UK’s economy” by protecting “tariff and barrier-free access to the single market”. Another profit warning came from London-focused estate agent Foxtons. Its shares dived 25% after the firm said Brexit would hit sales for the rest of the year. Shares in so-called challenger banks such as Virgin Money were also pummelled.
Fairbairn added: “There is one other action that needs to be taken immediately. The government should remove uncertainties over the long-term right to stay in the UK for those already working here as soon as possible.” Osborne spoke after it emerged that Bank of England governor Mark Carney had cancelled a trip to Portugal to remain in the UK to oversee any response from Threadneedle Street.
Much of the focus has been on the value of the pound, which had plunged to 31-year lows as the referendum result came in during Thursday night. The speculator George Soros, who made $1bn when sterling fell out of the exchange rate mechanism in 1992, had warned of a “black Friday” in the event of Brexit. His spokesman stressed that he had not bet against the pound last week. The Bank’s financial policy committee, set up in the wake of the financial crisis to look for threats to financial stability, will meet on Tuesday, when the Bank will again offer emergency loans to the banks as part of its Brexit planning.
“George Soros did not speculate against sterling while he was arguing for Britain to remain in the European Union,” the spokesman was quoted by Reuters as saying. “However, because of his generally bearish outlook on world markets, Mr Soros did profit from other investments.” The fall-out from the Brexit vote is being felt around the world. Italy’s main index fell 4%, extending Friday’s record losses of 12.5%. In Germany and France there were losses of 3%. At the time of the London close, on Wall Street the main share indices were all down more than 1%.
The Chancellor may have taken some comfort from the fall in yields on ten year government bonds. Yields on these gilts, which move inversely to prices, fell below 1% for the first time. This fall in gilt yields will keep government borrowing costs down and lead to lower mortgage rates. However, they also mean pension companies have started cutting the amount paid to the newly retired.
Osborne refused to repeat his pre-vote warning of a Brexit recession, saying only that the economy would now face “adjustments”. But analysts started to cut their forecasts for UK growth. Goldman Sachs, is now forecasting just 0.2% growth in 2017 - down from 2% predicted previously.
The consultancy Oxford Economics said interest rates could be slashed to 0% within weeks . Morgan Stanley analysts said European and UK stocks would fall up to 10% over the coming months and sterling would fall to between $1.25 and $1.30.
Much of the market’s focus has been on the pound, particularly after the speculator George Soros, who made $1bn when sterling fell out of the exchange rate mechanism in 1992, had warned of a “black Friday” in the event of Brexit. His spokesman stressed that he had not bet against the pound last week.
“George Soros did not speculate against sterling while he was arguing for Britain to remain in the European Union,” the spokesman told Reuters. “However, because of his generally bearish outlook on world markets, Mr Soros did profit from other investments