UK equities continued to climb today, buoyed by hopes of imminent stimulus from the Bank of England, while 10-year gilts fell to yet another record low after Chancellor George Osborne confirmed his Budget plans were now in tatters.
The FTSE 100 – less impacted by Brexit because of the international names that dominate the index – closed up a further 1.1%, at 6,578 points, while the domestically focused FTSE 250 continued to recover from the deep sell-off on Friday, closing up 1.2%
The dramatic fall and subsequent recovery since Friday means the blue chip index is nearly 4% higher than its pre-Brexit level. However, there has been a rotation among the biggest stocks in the UK, with banks and housebuilders still below closing prices last Thursday. Instead, defensives and precious metals companies have enjoyed the bulk of the gains.
For example, Fresnillo, the gold miner, is up a fairly staggering 42% in the last five days, while diversified miner Rio Tinto is up almost 13%. On the downside, despite a recovery in the last few days, Barclays and Royal Bank of Scotland are down 25% and 32% respectively. Housebuilders also remain deeply discounted, with Taylor Wimpey off 31%, for example.
Mid-caps also remain in the doldrums compared to Thursday’s pre-Brexit close, despite enjoying four days of gains. The FTSE 250 remains around 5% below its close, finishing the week at 16,465 points.
Outside of the UK, the US remains below pre-Brexit levels, albeit marginally, with the S&P 500 up 0.3% as London closed, trading at 2,104 points. Meanwhile in Europe, the impact on major stock markets has, if anything, been more pronounced. Germany’s DAX, for example, is still some 5% weaker, and it is the same for the French and Spanish stock markets, with the uncertainty the EU referendum has created spreading across the continent.
Government bond markets also continued to react to the plethora of news emerging. Today the Chancellor, rather than the Governor of the Bank of England, took centre stage, George Osborne confirming he had abandoned plans to achieve a Budget surplus in the UK by 2020. Blaming Brexit, the Chancellor said the government “had to be realistic” about the country’s finances, warning the Brexit shock will impact jobs and the wider economy.
Benchmark 10-year government bond yields fell further late in the afternoon following the Chancellor’s comments, down to 0.857%, while further down the yield curve two-year gilts had already plunged into negative territory.
All this, and we still do not know the true impact of Brexit. Stay tuned for more next week folks.