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Shares stage recovery after referendum meltdown Shares stage recovery after referendum meltdown
(about 2 hours later)
European stock markets are rallying in what analysts have called a “dead cat bounce”, bringing some respite after the UK’s vote to leave the European Union wiped $3tn off global stocks. European stock markets rallied in what analysts called a “dead cat bounce”, bringing some respite after the UK’s vote to leave the European Union wiped $3tn off global stocks.
In their worst-ever rout, equity markets lost $2.03tn of their value on Friday, with a further $930bn wiped off on Monday when the ratings agencies Fitch and Standard & Poor’s stripped Britain of its prized AAA credit rating. Some analysts have warned of a full-blown recession in the UK. In their worst-ever rout, equity markets lost $2tn of their value on Friday, with a further $930bn wiped off on Monday when the ratings agencies Fitch and Standard & Poor’s stripped Britain of its prized AAA credit rating. Some analysts have warned of a full-blown recession in the UK.
Stock markets clawed back some of their losses on Tuesday, and sterling has strengthened for the first time since Friday’s referendum result wrong-footed the markets. The FTSE 100 opened about 2% higher at 6,109, a jump of 125 points, and is now trading 1.9% higher. Related: Sir Richard Branson: Chinese investors quitting UK over Brexit vote - business live
Britain still has a large deficit and is heading into a recession Stock markets clawed back some of their losses on Tuesday, and sterling strengthened for the first time since Friday’s referendum result wrongfooted the markets. The FTSE 100 jumped 150 points to 6132.61, a 2.5% gain.
UK banks, including Lloyds Banking Group, Barclays and HSBC, along with the housebuilders are rebounding after suffering heavy losses in the previous two sessions. The housebuilder Redrow said it was hopeful that house sales would not be affected by the Brexit vote, predicting that pretax profits for the year to September would hit the top end of analysts’ estimates, of £240m. The French, German and Spanish stock markets also recovered some of their recent losses. The Dax in Frankfurt was up more than 200 points, or 2.2%, at 9,469.12 and the Cac in Paris rose 105 points to 4,090.03, a 2.6% gain. The Ibex in Madrid added 218 points to 7653.5, a 2.9% rise.
The aircraft engine maker Rolls-Royce and insurer Legal & General issued reassuring statements to shareholders that it is business as usual.
Joe Rundle, head of trading at ETX Capital, said: “This looks like a classic dead cat bounce. Whatever the leave side is saying about the fallout from the Brexit vote, the effects are very real and already starting to hit home.”Joe Rundle, head of trading at ETX Capital, said: “This looks like a classic dead cat bounce. Whatever the leave side is saying about the fallout from the Brexit vote, the effects are very real and already starting to hit home.”
He said the UK’s rating downgrade was the “first real signal that the Brexit vote has serious real-world repercussions for people’s finances”. Britain still has a large deficit and is heading into a recession
“Britain still has a large deficit and is heading into a recession – a ratings downgrade that makes government borrowing more expensive is the last thing the country needs if the tax take is reduced.” Together with Moody’s, all three major credit agencies have left their UK rating on negative outlook, suggesting more downgrades could follow. UK banks, including Lloyds Banking Group, Barclays and Royal Bank of Scotland , along with the housebuilders made gains after suffering heavy losses in the previous two sessions.
The French and the German stock markets rose more than 2%, with the Dax in Frankfurt trading at 9,474.60 and the CAC in Paris rising to 4,080.60. A Bank of England offer of special cash to the banking sector appeared to show no obvious tensions in the market. In the last of three special lending operations announced before the referendum in an effort to quell anxiety about the health of the banking system, some £3.1bn of extra liquidity was provided to banks. While this was ten times as much as in the previous auction, the central Bank’s data showed that banks were not scrambling to pay high sums for the loans provided.
After two days of heavy losses, sterling gained almost 1% against the US dollar, to $1.3350 – after hitting a 31-year low of $1.3118 on Monday. Last week it climbed to $1.45 on hopes of a remain vote. Against the euro, the pound rose 0.5%, to €1.052. After Monday’s rout in RBS shares, when they lost 25% at one stage, the bank’s chief executive wrote to staff to reassure them that it had made contingency plans for a Brexit vote. Aircraft engine maker Rolls-Royceand insurer Legal & General also reassured shareholders.
However, entrepreneur Sir Richard Branson sounded the alarm about thousands of job losses caused by investors pulling business from the UK. Economists are downgrading their forecasts for the UK economy and Rundle, said thedowngrades from credit rating agencies were the “first real signal that the Brexit vote has serious real-world repercussions for people’s finances”.
“Britain still has a large deficit and is heading into a recession – a ratings downgrade that makes government borrowing more expensive is the last thing the country needs if the tax take is reduced.”
Housebuilder Redrow, though, said that house sales would not be affected by the Brexit vote, predicting that pretax profits for the year to September would hit the top end of analysts’ estimates, of £240m.
Sterling, which hit a 31-year low of $1.3118 on Monday, has been regarded as main barometer to the market’s attitude to Brexit and after two days of heavy losses, sterling gained almost 1% against the US dollar to $1.3350. Against the euro, the pound rose 0.5%, to €1.052, but was later trading at €1.2026.
Kit Juckes at French bank Société Générale, said: “Markets are bouncing, and can bounce further but the clouds on the horizon are dark, and they’re real. Sterling can bounce to $1.35 for example - but the UK has no government and no plan for the future.”
In Asia, however, stock markets struggled to shrug off the Brexit vote. Japan’s Nikkei was only just in positive territory at 15,323.14 while Hong Kong’s Hang Seng closed 0.25% lower at 20,176.42. Several Asian governments are preparing stimulus packages: Japan’s economy minister said measures were likely to include assistance for small businesses.In Asia, however, stock markets struggled to shrug off the Brexit vote. Japan’s Nikkei was only just in positive territory at 15,323.14 while Hong Kong’s Hang Seng closed 0.25% lower at 20,176.42. Several Asian governments are preparing stimulus packages: Japan’s economy minister said measures were likely to include assistance for small businesses.
The Bank of England will offer extra liquidity to UK banks in a special auction later on Tuesday. David Cameron is heading to Brussels to explain the Brexit vote to Europe’s leaders at a two-day summit. David Cameron is heading to Brussels to explain the Brexit vote to Europe’s leaders at a two-day summit.
Economists at Daiwa said: “Over dinner, Cameron will have to explain the UK’s post-referendum position and plead for constructive negotiations while facing a barrage of criticism from other leaders. And, of course, the weakness of the UK bargaining position will be laid bare tomorrow when Cameron will be excluded from discussions among the remaining 27 member state leaders.” Economists at Daiwa said: “Over dinner, Cameron will have to explain the UK’s post-referendum position and plead for constructive negotiations while facing a barrage of criticism from other leaders. And, of course, the weakness of the UK bargaining position will be laid bare when Cameron will be excluded from discussions among the remaining 27 member state leaders.”