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Europe: Shares bounce back with first post-Brexit gains

Wednesday, June 29, 2016 - 06:59
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[LONDON] European stocks rose sharply on Tuesday, making their first gains since Britain's shock vote to quit the EU, and the pound rebounded as investors returned to jittery markets.

Trading floors appeared to have put the initial panic of Brexit behind them, with investors snapping up bargains after two days of heavy losses.

"It's been a welcome respite for European equity markets today as investors start to absorb the impact of last week's seismic miscalculation on the part of investors to the UK EU referendum outcome..." said Michael Hewson, chief market analyst at CMC Markets.

"Concerns remain around UK company access to the single market, and there is an element of repricing risk going on in that regard, but for now it appears markets are starting to settle into their new equilibrium," he added.

London's benchmark FTSE 100 surged 2.6 per cent, as did the CAC 40 in Paris, while the DAX 30 in Frankfurt rose 1.9 per cent.

Wall Street followed European markets higher, with the Dow climbing 0.7 per cent in late morning trading.

"The panic is behind us," said Christopher Dembik, a Saxo Banque economist.

"There were outsized reactions in all capital markets following the surprising Brexit vote," said Briefing.com analyst Patrick O'Hare.

"There is a budding belief at this juncture, then, that things got overdone on a short-term basis, so there is some bargain-hunting activity taking place in oversold markets and some profit-taking occurring in overbought markets." Large banks, which have endured two days of bruising losses, posted solid gains.

In Britain, shares in Barclays climbed 3.4 per cent and Lloyds jumped by 7.4 per cent.

In France, BNP Paribas jumped 3.9 per cent and Societe Generale gained 2.1 per cent, while in Germany Deutsche Bank and Commerzbank each added around one per cent.

In the United States, Bank of America rose 1.8 per cent, Citigroup 2.1 per cent and JPMorgan Chase 1.3 per cent.

The outcome of the June 23 referendum also caused an earthquake in British politics, prompting Prime Minister David Cameron to announce his resignation. Opposition Labour leader Jeremy Corbyn lost a confidence vote among his party's lawmakers.

Investors were also keeping a wary eye on an EU summit on Tuesday where Mr Cameron was meeting European leaders keen for Britain to expedite its EU exit.

World stock markets had plunged on Monday, extending Friday's dizzying losses which saw US$2.1 trillion wiped off international equities on the heels of the Brexit decision.

A day after sliding to a three-decade low, the pound began a rebound in Asia trading and stood at US$1.3309 in late European trading.

"The political vacuum in Westminster continues to suck sterling downwards," Moneycorp dealers said in a note to investors.

"It might look very attractive to buy a major currency which has fallen by more than 11 per cent in two trading days and is currently standing at its lowest levels in more than three decades," said Hussein Sayed, chief market strategist at FXTM in London.

"However, it might not be the case that sterling has reached its bottom just yet," he added.

British government bond prices, meanwhile, also fell after ratings agencies SP Global Ratings and Fitch both cut their ratings for the United Kingdom's sovereign debt.

Investors switching back into shares also helped bring the yield on the benchmark 10-year government bond, or gilt, off recent lows.

German bond yields, however, remained in negative territory as investors seeking a safe haven investment away from the British turmoil favoured the solidity of German sovereign bonds, also known as Bunds.

Asia led the bounce on Tuesday, with analysts pointing to traders having started to bet on a fresh round of stimulus to mitigate the effects of Britain's decision to leave the EU.

AFP