Abu Dhabi: The Brexit may well be the only talk in town for policymakers and UK-based company executives, but short-term investors in the equity markets are already over it.
On Wednesday, European stocks rallied for a second day in a row as investors started eyeing more fiscal stimuli from central banks – a move that would help equities surge – and jumping in on bargains.
At opening time, London’s FTSE 100 jumped 100 points, and was 2.6 per cent higher shortly before the market closed, while the FTSE 250, which is heavier with UK-based companies, was 2.99 per cent up around closing time.
Elsewhere in Europe, Germany’s DAX was 1.67 per cent higher, and France’s CAC 40 index jumped 2.42 per cent. Italy’s benchmark index also gained 1.74 per cent, as Spain’s main index surged 3.13 per cent.
On the other side of the Atlantic, Wall Street recorded solid increases in early trade, with the S&P 500 and the Nasdaq Composite gaining 1.1 per cent each, while the Dow Jones index rose 0.95 per cent
The sterling also rose around 1.2 per cent.
The corrections come after massive losses on Friday as Britain voted to leave the EU – a move that sent the currency to 31-year lows and European equity indices down no less than six per cent, with Italy and Spain’s indices down over 11 per cent each.
Though most indices were trading in the green on Wednesday, analysts continued to warn about more volatility and drops considering the huge dark cloud brought in by the UK’s decision to leave the European Union. Policymakers are yet to outline a framework for the Kingdom’s economy and foreign trade.
John Hardy, head of FX Strategy at Saxo Bank, described the Brexit as “just a warm up for global market convulsions.”
“Currency markets are likely to remain unsettled as central bank signals aren’t what they used to be and as we all try to understand what comes next. Indeed, Brexit will prove the warm-up for a global revolution against the current market and policy paradigm,” he said in a note.
Other economists were even more bearish, saying that the UK will now inevitably head to a recession thanks to the Brexit. Mark Carney, governor of the Bank of England, warned last month that a Brexit could lead to a technical recession (whereby the economy contracts for two consecutive quarters).
“Expect business investments to come down; companies will wait and see what emerges. After all, this is a big structural shock to the UK. Consumer confidence is going to take a hit, even though I expect the Bank of England to cut rates, I don’t think that the UK will be able to avoid a recession,” said Mohammad Al Erian, chief economic adviser at Allianz.