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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: Stocks end well off session lows, long-term Gilts surge Stocks in London finished well off their session lows in the aftermath of the Brexit vote, amid a sharp drop in the pound and a surge in benchmark 10-year Gilts.
On Thursday, after 43 years, and in a historic referendum, the UK voted to leave the EU.
The Footsie finished 175.13 points or 2.76% lower at 6,162.97, led by losses in shares of homebuilders and financials, but nonetheless outperformed European equity benchmarks by a wide margin. Out on the second-tier index, it was a different story, although it too managed to recover nearly half of the day's losses, with the FTSE 250 closing down by 1,226.70 points or 7.08% to 16,106.81.
Shortly before the start of trading, the Bank of England issued a statement saying that it was monitoring developments closely. The European Central Bank followed shortly afterwards with a similar message.
In another shock development, the Prime Minister announced he would step down.
Among other things, that appeared to take off the table the possibility that Article 50 of the Lisbon Treaty would be triggered - starting the two-year countdown to legally finalise the UK's exit - in the immediate near-term .
On a hopeful note, speaking from Berlin German chancellor Angela Merkel warned against drawing "quick and simple conclusions [on Brexit]" that might create new and deeper divisions.
That might be important in so far as some economists, such as those at Morgan Stanley, argued that whether the 'divorce' with the EU was 'civilised' or 'acrimonious' would determine the extent of the economic fallout and how the Bank of England might need to respond.
Jacob Nell and Melanie Baker at Morgan Stanley said: "We think that the uncertainty after a vote to leave will have two immediate effects.First it will hit sterling, as uncertainty reduces non- residents' appetite or UK assets against the background of the UK's record current account deficit. Second, it will hit growth, as firms hold back on investment, and households increase precautionary savings. Longer term, we expect a less open and more volatile economy, with reduced inflows of capital and labour, and a lower rate of potential growth."
Following the referendum result, economists at HSBC cut their forecast for the rate of growth in UK gross domestic product in 2017 from 2.1% to 0.7%. They also revised their projection for CPI inflation next year to 4.0% from 1.7%.
For Simon Wells, HSBC's chief UK economist, the most prudent course of action for the Bank of England would be to let any initial panic subside and make a more considered assessment before lowering Bank Rate.
"The UK now faces a period of intense political and economic uncertainty. The voting pattern also highlighted deep divisions in opinion across the country."
Alberto Gallo, head of macro strategies at Algebris Investments, was considerably more pessimistic, telling Bloomberg TV the economic impact of Brexit on the UK might be potentially quite serious.
Over on the Continent, shares got walloped, with Germany's Dax down by 6.82% or 699.87 points to 9,557.16 and the Cac-40 off by 8.04% or 359.17 points at 4,106.73.
Cable finished lower by 8.26% at 1.3648 - having hit a 30-year low during the session - while the US dollar/yen cross was off by 3.66% to 102.27. The yield on the benchmark 10-year Gilt plummeted 28 basis points to 1.09%.
Other asset classes were seeing similar moves, with front month Brent crude futures down by 4.431% to $48.74 per barrel on the NYMEX, while front month gold futures on COMEX jumped 4.57% to $1,320.60/oz.
FTSE 100 giants express confidence in the outlook
In the long-term, IAG did not expect the UK's decision to have a "material" impact on the business but it no longer expected to register an increase in operating profits in 2016 similar to the previous year's, the company said in a statement.
Aviva did not expect the Leave vote to have any significant operational impact on the company. The life insurer emphasised that its operations in the UK and its other subsidiaries in the European Union were well-capitalised and continued to trade as normal.
Deutsche Boerse and London Stock Exchange said they remained fully committed to their $30bn merger on Friday, reiterating that the outcome of the EU referendum played no part in the deal. The companies said in a joint statement that the referendum does not impact the compelling strategic rationale of the merger. |
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| Market Movers
FTSE 100 (UKX) 6,162.97 -2.76%
FTSE 250 (MCX) 16,088.05 -7.19%
techMARK (TASX) 3,057.13 -1.28%
FTSE 100 - Risers
Randgold Resources Ltd. (RRS) 7,370.00p 14.18%
Fresnillo (FRES) 1,387.00p 11.95%
ARM Holdings (ARM) 1,080.00p 5.99%
Compass Group (CPG) 1,350.00p 3.93%
GlaxoSmithKline (GSK) 1,482.00p 3.71%
Mediclinic International (MDC) 986.00p 3.52%
AstraZeneca (AZN) 4,031.50p 3.41%
Relx plc (REL) 1,283.00p 3.22%
Pearson (PSON) 914.00p 2.93%
British American Tobacco (BATS) 4,385.00p 2.56%
FTSE 100 - Fallers
Taylor Wimpey (TW.) 136.10p -29.26%
Persimmon (PSN) 1,520.00p -27.55%
Barratt Developments (BDEV) 439.80p -23.84%
International Consolidated Airlines Group SA (CDI) (IAG) 409.00p -22.54%
Berkeley Group Holdings (The) (BKG) 2,590.00p -21.16%
Lloyds Banking Group (LLOY) 57.00p -21.00%
ITV (ITV) 174.40p -20.44%
British Land Company (BLND) 612.50p -19.54%
Legal & General Group (LGEN) 190.90p -19.25%
Royal Bank of Scotland Group (RBS) 205.30p -18.04%
FTSE 250 - Risers
Acacia Mining (ACA) 400.00p 16.96%
Centamin (DI) (CEY) 120.30p 10.47%
Polymetal International (POLY) 922.00p 5.80%
NMC Health (NMC) 1,270.00p 5.03%
JPMorgan American Inv Trust (JAM) 300.40p 2.56%
Fidelity China Special Situations (FCSS) 141.10p 2.25%
Worldwide Healthcare Trust (WWH) 1,816.00p 1.74%
Sophos Group (SOPH) 182.00p 1.62%
Scottish Mortgage Inv Trust (SMT) 261.10p 1.56%
JPMorgan Emerging Markets Inv Trust (JMG) 593.00p 0.94%
FTSE 250 - Fallers
Aldermore Group (ALD) 143.40p -32.04%
Crest Nicholson Holdings (CRST) 430.00p -26.50%
Virgin Money Holdings (UK) (VM.) 275.30p -24.86%
Bellway (BWY) 2,060.00p -24.65%
Derwent London (DLN) 2,587.00p -24.58%
Bovis Homes Group (BVS) 775.50p -24.27%
Grafton Group Units (GFTU) 543.00p -23.74%
Great Portland Estates (GPOR) 599.50p -22.19%
Marshalls (MSLH) 253.90p -21.66% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks tumble after Brexit vote; FTSE outperforms The UK's vote to leave the European Union sparked a bloodbath in European equity markets on Friday, sending the pound tumbling against the dollar and weighing on oil prices, while gilts and gold surged as investors fled to safety.
The benchmark Stoxx Europe 600 index ended down 6.9%, suffering its biggest losses since 2008, while Germany's DAX closed off 6.8% and France's CAC 40 ended 7.9% weaker.
Peripheral European markets posted the largest declines, however, with Italy's FTSE MIB and Spain's IBEX 35 both down 12%.
In the UK, the FTSE 100 fell 2.8%, having heavily pared losses as the day wore on, with some investors stepping in to pick up a bargain. The weaker pound was also likely to have been behind the FTSE's outperformance of its European peers given that many of the large cap companies derive a large chunk of their revenues from abroad or report in US dollars.
The FTSE actually managed to end higher for the week despite Friday's heavy losses.
Results of the UK's EU referendum showed a Leave win at 52%, with Remain at 48%. London, Northern Ireland and Scotland backed Remain, while the rest of England and Wales opted to leave.
Michael Hewson, chief market analyst at CMC Markets, said: "The extent of the plunge was exacerbated by a market positioned in completely the wrong way as investors chose to place their faith in the pollsters, and threw caution to the winds, by betting big on a vote to Remain."
On Thursday, stocks ended higher, with market participants betting that the UK would vote for the status quo after opinion polls and bookies' odds put the Remain campaign in the lead.
The pound tumbled in early trade on Friday, dropping to its lowest level against the dollar since 1985, trading as low as $1.3229. By the time of the European close, sterling was trading at $1.3645.
As investors fled to safety, gilts and gold surged, but oil prices tanked.
UK gilt yields - which move inversely to prices - hit record lows, while gold rallied 4% to settle at its highest level in two years.
Oil prices settled lower, with West Texas Intermediate down 1.1% to $48.85 a barrel and Brent crude down 4.3% to $48.73.
UK Prime Minister David Cameron resigned on Friday, saying the UK needed "fresh leadership" to "steer the country" out of the EU. "There is no need to have a precise timetable today, but in my view we should have a new PM in place in time for the Conservative Party conference in October," Cameron said.
"A negotiation with the EU will need to begin under a new PM, and I think it's right that this new PM takes the decision about when to invoke Article 50."
Former London Mayor Boris Johnson was the favourite to succeed Cameron.
Unsurprisingly, banks took an absolute battering, with the Stoxx 600 sub-index for the sector down more than 14%.
In London, shares in Lloyds, Royal Bank of Scotland and Barclays ended down between 16% and 21%, suffering whopping losses but off their lows. It was a similar story for housebuilders.
There were a few risers in London, however. Defence and aerospace firm Rolls-Royce - which generates two thirds of its revenues and three quarters of its order book outside the EU - racked up some healthy gains, followed closely by pharmaceutical groups GlaxoSmithKline and AstraZeneca.
Gold-related shares also enjoyed a strong performance as the yellow metal advanced.
The Bank of England said on Friday that it was "monitoring developments closely" and had undertaken "extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks". |
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| | US Market Report | | US open: Equity markets slump on Brexit vote Stocks on Wall Street fell sharply on Friday as investors reacted to news that UK voters had opted to leave the European Union.
At 1500 BST, the Dow Jones Industrial Average was down 2.2%, the S&P 500 was off 2.3% and the Nasdaq was 2.7% weaker.
Results of the referendum showed a Leave win at 52%, with Remain at 48%. London, Northern Ireland and Scotland backed Remain, while the rest of England and Wales opted to leave.
Markets in Asia crashed on Friday; the Nikkei lost over 8% and the Hang Seng fell more than 4%, while the yen surged past 100 per US dollar for the first time since November 2013 on its safe-haven appeal.
In Europe, the main indices were sharply lower, but off their worst levels, while the FTSE 100 was weak but outperforming its European peers.
As investors fled to safety, gold, the dollar and US Treasuries all benefited. The pound slid to a 31-year low earlier and at 1500 BST was trading down 8.2% at $1.3786.
Meanwhile the yield on the 10-year US bond hit its lowest level since 2012. Yields move inversely to prices.
In oil markets, West Texas Intermediate dropped 4.3% to $47.94 a barrel while Brent crude lost 4.6% to trade at $48.58.
In terms of sectors, bank stocks took a hit, with Morgan Stanley down 7.8%, Goldman Sachs down 5%, and Bank of America 4.2% weaker.
British Prime Minister David Cameron announced his resignation on Friday, saying the UK needed "fresh leadership" to "steer the country" out of the EU.
The Bank of England was quick to respond to the referendum outcome, saying it was "monitoring developments closely" and had undertaken "extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks".
In addition, the European Central Bank pledged to provide additional liquidity, if needed, in euro and foreign currencies.
Bank of America Merrill Lynch said: "Once the dust of the knee-jerk market reaction settles, we think that the UK's economy will clearly be the main victim, but also that the shock for the Euro area and the global economy is likely to be significant. Policy responses will be needed beyond the 'first-aid' remedy market disruption normally requires."
Britain's vote for Brexit prompted some analysts to re-think their expectations on the timing of the next interest rate hike.
ING pointed out that its view on the timing of the next Fed rate rise had always been contingent on a Remain vote, as financial market stability was one of the three conditions for the US central bank to hike.
"We believe US financial market tightness will increase significantly following the UK's Leave vote, irrespective of what is happening elsewhere in the US economy."
The bank said even a December rate hike looks like a long shot now, with any further tightening unlikely until 2017. |
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| | Broker Tips | | Broker tips: Sophos Group, IAG, Next, M&S Numis sounded an optimistic note on Sophos Group ahead of the company's Capital Markets Day, pointing to the firm's strong products, a substantial market opportunity and the attractive cash flow yield on offer to back up its arguments.
Against that backdrop, it believed the IT security specialist's upcoming CMD on 29 June was a potential positive catalyst on the horizon.
The broker also called attention to recent mergers and acquisitions activity in the space (Symantec/Bluecoat, Fireeye), which in its opinion meant that trade buyers saw value in the company.
Recent deal activity also provided strong validation of Sophos's integrated network/endpoint strategy, analysts David Toms and Will Wallis said in a research note sent to clients.
Analysts at Credit Suisse slashed their targets for Marks&Spencer and Next stock on the back of expectations for lowering economic growth in the UK and weakness in sterling.
The Swiss broker said that following the referendum result it now expected British GDP to shrink by 1.0% in 2017 while its economists expected cable would fall as far as 1.20.
It pointed out the recent experience of Swedish retailer H&M, whose trading was buffeted by weaker demand together and a circa 20% adverse move in euro/dollar, which combined drove a greater than 350 basis point drop in margins at its European business.
Analysts Pradeep Pratti and Simon Irwin cut their target on M&S from 370p to 340p and on Next from 5,200p to 4,950p.
Analysts at RBC downgraded their recommendation on shares of IAG, saying the company now faced economic and stranded capital risk.
Regulatory issues aside, the broker now saw potential for economic uncertainty and hence reduced travel demand.
Similarly, should the UK's economic role decline, then 'premium' travel demand would also take a hit, its analysts said.
"Airlines live and die by the economic outlook and for IAG, with 67% of ASKs in the UK and Ireland, will face added uncertainty following the UK's referendum result," analysts Damian Brewer and Andy Jones said in a research note sent to clients. | | |
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