Markets continued their march higher this week, with blue chips testing multi-month highs, as investors continued to opt for equities amid an ongoing environment of record low interest rates.
UK shares have already bounced back from the Brexit shock and with momentum behind them following the Bank of England’s announcements last week, the FTSE 100 is rapidly closing in on the 7,000 mark.
The main index closed up at 6,915 points on Friday, adding almost 2% for the week, with banks among the big winners as value hunters look for opportunities in stocks which have lagged the wider market.
Names including Royal Bank of Scotland, Barclays and Lloyds finished up 10.2%, 7.8% and 4.4% respectively while surging oil prices – which climbed nearly 10% this week to $46.8 per barrel – also boosted the majors. BP and Shell finished up 3.2% and 1.4% respectively.
The FTSE 250 also enjoyed another solid week, up more than 2.5%, as the snap back from Brexit continues apace.
Darius McDermott, managing director of Fund Calibre, said while no one could label equity markets as cheap at these levels, they remain well supported.
“The dollar earners continue to attract investors among the blue chips, with the currency impact continuing to act as a boost. A lot of cash also remains on the sidelines, so while valuations appear rich, these two factors should support markets in the near term.”
Sterling itself fell further against currencies including the US dollar and the euro, with QE and a weak report from the Royal Institute of Chartered Surveyors weighing on the currency. By Friday it was down at $1.2930 versus the US dollar.
US markets had a tougher week with the S&P 500 flat on the week, trading just off a record at 2,184 as London closed on Friday.
Meanwhile in Europe, Germany’s Dax continued to follow the FTSE 100 higher as it too recovers from the implications of Brexit, while further afield in Japan the Nikkei also enjoyed a strong week with gains of 4.1%.
In bond markets, UK gilts continue to react favourably to further quantitative easing, with yields falling as low as 0.50% on Friday for the 10-year benchmark gilt.
Zero – or indeed negative – yields are becoming close to being a reality for the UK, and the impact is being felt across the asset class. Legg Mason Global Asset Management noted that UK corporate bonds are the best-performing asset class out of a select 32 nations it compares them to, with a 5.7% gain over the past one-month period as spreads continue to compress.
While gilts tested new lows and equities climbed, gold dipped, trading at $1,350 on Friday shortly after London closed, down marginally on the week.
In the wake of the crisis, and in order to provide a quick and easy snapshot of the real impact of Brexit on markets, we will be updating the Brexitometer weekly, detailing the impact of the EU referendum result on UK markets.
FTSE 100: UP 9%
6,338 points at close on 23 June.
6,916 points at close on 12 August.
FTSE 250: UP 3.3%
17,334 points at close on 23 June.
17,921 points at close on 12 August.
FTSE All Share: UP 8%
3,481 points at close on 23 June.
3,762 points at close on 12 August.