Wednesday 26 October 2016

Brexit: US stocks open higher taking lead from Europe and Asia

Published 28/06/2016 | 07:35

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 23, 2016. REUTERS/Staff/Remote
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 23, 2016. REUTERS/Staff/Remote

US stocks opened sharply higher on Tuesday as investors rushed to pick up stocks beaten down by the fears and uncertainty surrounding Britain's decision to exit the European Union.

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The Dow Jones industrial average .DJI was up 117.62 points, or 0.69 percent, at 17,257.86, the S&P 500 .SPX was up 14.78 points, or 0.74 percent, at 2,015.32 and the Nasdaq composite .IXIC was up 50.67 points, or 1.1 percent, at 4,645.11.

Earlier, Irish stocks like Ryanair and Bank of Ireland made gains this morning for the first time in three days having been hammered since Brexit news took the markets by storm late last week.

Ryanair, which has a big exposure in Europe and the UK, added on over 6.6pc today while Bank of Ireland, which also has operations across the pond, was up 5.8pc.

Other gainers included Smurfit Kappa, Glanba, Paddy Power and CRH as the Iseq gained and was up at 5,438.74 in early trade.

Some market watchers said that the decision Standard & Poor's  and Fitch to cut the UK's AAA rating, the last of the big ratings agency to do so, drew a line in the sand for some investors.

European shares rose for the first time in three days on Tuesday, attempting a recovery from the heavy sell-off in the previous two sessions after Britain's shock vote to leave the European Union.

The pan-European STOXX 600 index, which had slumped 11 percent in the last two sessions.

British and European banking stocks, which had suffered the worst of the market rout of the last two days, climbed back up, with Barclays up 6.3 percent while Deutsche Bank rose 3.5 percent.

Volkswagen shares rose 2.9 percent, as sources said the German carmaker was nearing a settlement valued at more than $15 billion with nearly 500,000 U.S. diesel owners and government regulators over polluting vehicles.

Shares in oil majors also advanced to add a further stabilising effect to the market, with oil prices climbing as a looming strike in Norway threatened to cut output in western Europe's biggest producer.

Asian stocks rose for the first time in three days on Tuesday while sterling and other currencies advanced as investors scooped up beaten down assets.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.1pc but the tiny gain belied an impressive turnaround which saw the Japanese stocks .N225 rally more than 3pc from the day's lows, pulling other Asian markets higher. The Nikkei was up 0.6pc by early afternoon.

But in a sign that investors remained extremely nervous, trading volumes were light and price action was choppy across markets.

"Short-covering in the currency market and US futures market is limiting selling," said Yutaka Miura, senior technical analyst at Mizuho Securities. "But overall sentiment remains fragile."

"Friday's Brexit jump scare has faded, but markets are still worried" about its possible effect on global demand, SLW brokerage trader João Paulo de Gracia Corrêa said.

Policymakers from Japan to China vowed to protect their economies and markets from the destabilizing impact of Brexit.

"It's hard to avoid short-term volatility in China's capital markets, but we won't allow roller-coaster rides and drastic changes in the capital markets," Premier Li Keqiang said at the World Economic Forum (WEF) in the city of Tianjin.

In currency markets, sterling GBP=D4 was changing hands at $1.3291, after falling to a three-decade low of $1.3122 on Monday, its weakest since 1985.

Against the yen, sterling rose 1pc to 135.54 GBPJPY=R, not far from Friday's 3-1/2 year low of 133.18. The euro stood at 82.93 pence EURGBP=R after scaling a two-year peak of 83.79 pence on Monday.

The euro edged down slightly to $1.1060 EUR=, not far above Friday's three-month low of $1.0912 after the British vote.

"In the near term, risk aversion and market uncertainty makes the euro less attractive to investors," Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note to clients.

"In the long run, Brexit also raises questions about the Eurozone's viability because if major countries like Britain start dropping out the EU, nationalism could drive smaller Eurozone nations to exit out of the euro," she said, adding that she expects the euro to "make another run" for the $1.0900 level.

Early signs of a cautious return in demand for riskier assets were evident in the high-yielding Aussie AUD=D3 and the New Zealand dollar NZD=, which helped put a floor under other emerging market currencies in Asia.

Anticipating yet another round of global policy easing by major central banks, government bond yields pushed deeper into negative territory. Yields on ten-year and 20-year Japanese debt plunged to fresh record lows.

Gold XAU=, one of the rare outliers in global financial markets in the last few days, came in for a bit of profit taking with the precious metal down 0.7pc. Silver XAG= fell 0.3pc.

Crude oil prices regained some of their overnight losses after tumbling nearly 3pc on Monday. [O/R]

US crude CLc1 added 1.7pc to $47.11 a barrel after shedding 2.8pc on Monday, while Brent LCOc1 rose 1.6pc to $47.89 after skidding 2.6pc and touching seven-week lows overnight.

(additional reporting Reuters)

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