Brexit, what Brexit?
Shares near 2016 highs
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[July 13, 2016]
By Patrick Graham
LONDON (Reuters) - Stock markets traded
within sight of their highest levels this year on Wednesday as the
prospect of stimulative economic policy across the developed world
eased immediate concern over Britain's vote to leave the European
The swift moves by the Conservative Party that see Theresa May
replacing David Cameron as prime minister on Wednesday have helped
fund a recovery that, aside from sterling itself, has wiped out the
negative reaction to the June 23 vote.
Asian markets outside Japan <.MIAPJ0000PUS> gained another third of
a percent to come within a hair's breadth of the year's highs from
April, while European shares rose 0.2 percent, on course for their
fifth straight day of gains.
Traders say that concerns over the economic and political impact of
what promise to be torturous exit talks between London and Brussels
have not gone away, but they are certainly on the back burner for a
U.S. stock futures showed Wall Street set to build further on record
highs hit on Tuesday. Expectations that sterling's fall will help
British companies has London's FTSE index at its highest since last
"This is a short term relief rally thanks to some certainty around
the swift handover to a new PM," said Tobias Davis, Head of
Corporate Treasury Sales at Western Union in London.
"The path ahead still looks incredibly challenging. Equities are
only rallying thanks to negative yields across most of the curve in
Swiss, German and Japanese markets. In reality, the economic
landscape is deteriorating."
Sterling, whose 14 percent fall made it one of the main victims of
last month's referendum, hit its highest in more than a week at
But for every blip higher for the pound at the moment there are more
sellers ready to bet it will fall further in the months ahead and it
quickly fell back to stand just 0.2 percent stronger on the day at
The yen, investors' go-to currency in times of market stress was
also up half a percent against the euro and dollar after falling
sharply on the back of Japan's move into another round of
The debate among currency traders around Thursday's Bank of England
meeting is also now not whether it will cut interest rates but by
how much -- some measure of the concern over the economy's fate for
the rest of the year.
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"I'm struck at the enthusiasm of all and sundry to tell us that
European and U.S. growth rates will hardly be affected by the UK
post-referendum slowdown," Societe Generale's Kit Juckes said in a
note to clients.
"That flies in the face of the increased correlation of major
economies' growth rates in an ever more connected world."
In commodities, oil prices dropped after industry group American
Petroleum Institute (API) reported a surprise build of 2.2 million
barrels in U.S. crude stockpiles last week.
Brent crude futures fell 1.6 percent to $47.71 after surging roughly
5 percent on Tuesday on broad improvement in risk sentiment.
Japanese Prime Minister Shinzo Abe ordered a new round of fiscal
stimulus spending, as expected, after an election victory on Sunday.
His meeting with former U.S. Federal Reserve Chair Ben Bernanke, a
proponent of "helicopter money" policies - printing money and
directly handing it to the private sector to stimulate the economy -
fueled speculation that some of the stimulus plan could be funded by
Bank of Japan easing.
The European Central Bank is also widely expected to take a dovish
stance when it holds its policy review a week later.
"After being faced with the prospect of a major slowdown in global
activity in the wake of the Brexit vote, governments and central
banks worldwide are now expected to do their utmost to reassure
markets and provide stimulus," wrote Angus Nicholson, market analyst
at IG in Melbourne.
(Editing by Toby Chopra)
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