This article titled “FTSE 100 regains all its losses since shock Brexit vote despite recession fears – as it happened” was written by Graeme Wearden (until 2.45pm BST) and Nick Fletcher, for theguardian.com on Wednesday 29th June 2016 17.01 UTC
It was not just the FTSE 100 which moved sharply higher for the second day running. As bargain hunters returned after the recent hefty falls, markets across Europe and in the US recorded big gains despite talk of possible recession following the Brexit vote. Analysts said buyers had also moved back into the market as they realised that despite the referendum, the UK would not trigger Article 50, setting the exit from the EU in motion, for months, given the political turmoil in the country. The final scores showed:
On Wall Street, the Dow Jones Industrial Average is currently up 227 points or 1.3%.
Meanwhile the pound has added 1% to .348 and 0.75% to €1.214.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
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.
And the 3.58% gain looks like the biggest one day rise since October 2011.
The FTSE 250 has finished 3.22% better at 16,002.90.
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.
In 2014, Deltour won widespread praise for helping bring to light hundreds of controversial tax deals granted in previous years by the Luxembourg tax office. The revelations helped lay bare the tax arrangements of companies including Burberry, Pepsi, Ikea, Heinz, Shire Pharmaceuticals and others.
The full story is here:
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:
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:
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.
The index is 0.2% lower than in May 2015, declining year on year for the first time in almost two years. Lawrence Yun, the association’s chief economist, said:
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.
Yun said the fallout from the Brexit vote provided headwinds but also opportunities:
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.
The FTSE 100 is still around 2% higher although off its best levels, while Germany’s Dax is up 1.7% and France’s Cac up almost 2.5%.
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.
The top riser right now is building firm Taylor Wimpey (+7%), followed by a clutch of other builders, plus mining companies and major exporters.
The pound is also gaining ground, up 1.5 cents today at .35. That’s around 4 cents higher than Monday’s 31-year low, but still 10 cents below pre-referendum levels.
The rally comes despite a tidal wave of warnings about Brexit, and signals from Brussels that negotiations over Britain’s withdrawal will be tough.
Britain’s refusal to pull the trigger on Article 50, to leave the EU, has left Europe in the dark. But it also – paradoxically – seems to be reassuring the City, and sparking some bargain-hunting in the markets.
But Adam Jepsen, founder of Financial Spreads, reckons more market volatility is likely.
“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,”.
Especially when politicians are still grappling with how to handle the Brexit vote….
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.
Over in Brussels, Greek prime minister Alexis Tsipras is making a new push against Europe’s austerity measures:
This week’s summit was a rare treat for Tsipras; the Brexit issue means it was one of the few gatherings where Greece’s debt crisis wasn’t on everyone’s mind.
A nice bit of history here:
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%.
That’s a ridiculously cheap level; good news for governments running deficits, but an alarming sign that markets expect little growth and weak inflation for a while.
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.
Here’s a flavour:
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.
He could choose to retain membership of the European single market, keeping Britain a member of the European Economic Area while ditching its EU membership. That would betray those with legitimate concerns about immigration, and the xenophobes.
He could prioritise the strict control of movement of people. That would betray his beloved London and the young. Or he could dither and betray the whole country as it sinks into recession.
The time has passed when you can be all things to all people, Mr Johnson. To govern is to choose and your choice is who you betray…
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….
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).
He’s produced a map, showing where the EU will be a hot topic.
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.
They also expect that Britain will struggle to get many concessions out of the EU during the negotiations, and will end up with ‘curtailed’ access to Europe’s markets.
The note (which Ed Conway has tweet) also predicts that Scotland will break away from the UK, and implement a ‘new currency’
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.
And this means that the UK economy will be much weaker than expected.
Here’s the key points:
Fitch point out that the long-term effects are harder to predict, partly because no-one knows what relationship the UK will have with the European Union. But they don’t expect much of a Brexit dividend:
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.
They also predict that the Bank of England will cut interest rates by 25 basis points (from 0.5% to 0.25%) later this year, while the Federal Reserve will resist raising borrowing costs until the end of this year.
The BoE’s reaction to Brexit is quite hard to call — do they slash rates to fight the recession, or hike them to bolster the pound?
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.
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:
But Justin Bisseker, analyst at Schroders, has predicted that the UK economy will suffer badly from Brexit.
Katherine Griffiths, banking editor at The Times, flags up that some investment banks have already made exit plans:
Analysts at Credit Suisse are speculating that last week’s vote may not be the end of the matter….
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.
It appears that investors are eagerly buying shares because they don’t expect Britain to trigger Article 50 soon. Mahoney adds:
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.
EU leaders will chivy Britain along to do the deed, but they may have to wait until a new prime minister is installed.
Shares in London are climbing steadily this morning.
The FTSE index has now gained 120 points, or almost 2%, to 6260. That’s only 78-points shy of its closing level last Thursday, when the City expected the Remain campaign to win.
Housebuilding firms are up, with Persimmon gaining 5% and Barratt Development up 3.5%.
Financial stocks are also rallying; Prudential has jumped 5%, while Barclays is 3% higher.
However, both sectors are still *sharply* lower than last week….
The FTSE 250 index, which includes smaller UK companies, has risen by 1.5%. Shawbrook, a new ‘challenger bank’ which tumbled yesterday after admitting making some loans that it shouldn’t, are up 23%.
So, is the Brexit wobble over?
Not according to Joe Rundle, head of trading at ETX Capital, who says:
“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.
The line from the chief leavers seems to be that Britain can have its cake and eat it by maintaining access to the common market without the free movement of people.
Unfortunately this looks like an impossible circle to square as the EU is not prepared to offer this kind of special relationship – Switzerland risks wrecking its bilateral trade deals with the EU if it implements a binding 2014 referendum blocking free movement.
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.”
On the upside, Greene King might benefit from Remain voters drowning their sorrows…
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.
Also, lenders approved more mortgages than expected, in another sign that consumers had remained pretty confident – before the Brexit bombshell landed.
That’s according to new Bank of England data, which shows:
Telegraph business editor Ben Wright explains why Brexit could be such bad news for the City, and thus the rest of the UK:
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.”
On Monday, the pound hit a 31-year low around .312, and is now hovering around .34.
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…
But how many crises can Europe handle, asks Aengus Collins of the Economist Intelligence Unit….
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.
They’re also following Jeremy Corbyn’s attempt to not become Labour’s next former leader, after losing a vote of confidence last night.
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.
That means the blue-chip index is only 100 points below its level on Thursday night, before the EU referendum polls closed.
Banks and mining companies are among the top risers, as investors regain some optimism after last week’s Brexit shock.
Tony Cross, market analyst at Trustnet Direct, says:
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.
It reports that prices rose 0.2% between June and May, raising the average property price to £204,968. That means prices were 5.1% higher than a year ago.
However, we’ll have to wait a few months to discover what the Brexit vote means for prices.
As Jonathan Hopper, managing director of the buying agents Garrington Property Finders, puts it:
“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.
“Unfortunately this data is about as much use in predicting the future course of the property market as sun-dappled photos of the summer of 1914. It’s a historical record of a lost age before Europe changed forever.
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.”
Many Japanese companies have operations in the UK, such as carmaker Nissan, which runs Britain’s largest car factory in Sunderland.
A majority of voters in Sunderland put their cross in the ‘Leave the EU’ box last week, and some are now wondering about the consequences….
The pound is also looking quite stable this morning, hovering around the .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.
Yesterday’s rally, which saw the FTSE 100 jump 2.6%, is likely to continue this morning. City firm IG are predicting another 1% jump, which would take the blue-chip index close to its levels before referendum day.
Asian markets have already rallied overnight, with Japan’s Nikkei closing 1.5% higher.
It’s a curious rally, given Britain is wallowing in an unprecedented political crisis.
Conservatives MPs are racing to find a new leader, while their Labour counterparts are trying the damnest to ditch their current one. Oh, and we also need a new football manager.
But investors may be relieved that the financial world hasn’t descended into mass panic over the last five days. They may also be hoping that central bankers will do whatever it takes to prevent chaos breaking out.
So, an odd limbo has set in, since it became clear that Britain wouldn’t immediately trigger Brexit by activating Article 50 of the Lisbon Treaty.
Meanwhile, UK companies are still chewing through the implications of the Brexit vote – which could be very severe if Britain loses access to the single markets.
Last night, European leaders held a farewell dinner with David Cameron, where the UK PM blamed unrestricted migration for his failure to win last week’s vote.
They’ll be meeting again this morning to discuss the way ahead; Cameron, though, has headed home….
We’re getting some useful economic data today:
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