Sterling makes first post-Brexit rally as Asian markets steady

SINGAPORE — The pound sterling and European stocks yesterday made their first gains since Britain’s shock vote last Thursday to leave the European Union, lifted by short covering and bargain hunting even as political and economic uncertainty continued to prevail, while Asian shares stabilised following a pledge from China to counter Brexit-related volatility.

Mid-afternoon in London, the pound was up 0.5 per cent at S$1.8120 in volatile trading, after having fallen to an all-time low of S$1.7884 on Monday. Against the US dollar, the pound rose 1.1 per cent to US$1.3375 after plunging more than 11 per cent in the previous two sessions and touching a low of US$1.3121 on Monday, the weakest since 1985.

“After such huge market swings since Friday, currencies are undergoing a bear market rebound and the US dollar is part of that move. This is just temporary as markets are still facing the aftershocks of the Brexit outcome,” said Mr Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

The euro clawed back 0.4 per cent to US$1.1072, after having lost about 3.5 per cent in the previous two sessions. The safe-haven yen fell 0.4 per cent to 102.40 per US dollar, after having surged more than 4 per cent over the past two sessions. Gold, which chalked up gains of 5.4 per cent in the last two sessions, retreated 0.8 per cent yesterday to US$1,314.66 an ounce.

On the stock markets, Britain’s FTSE-100 Index and Germany’s DAX were both up 2.9 per cent in mid-afternoon trade, after they nosedived 5.6 per cent and 9.6 per cent, respectively, in the past two sessions. Despite Standard & Poor’s move on the United Kingdom’s top credit rating, downgrading it from AAA to AA after the Brexit vote, investors sought out bargains amid speculation that policy makers will take action to shore up markets after the recent rout. Across the Atlantic, the Dow Jones Industrial Average rose 200 points, or about 1.2 per cent, early in the session.

“Stocks are rebounding on the expectation that there will be coordinated intervention by central banks. What central banks can do is put confidence back in the market by telling everyone that they are ... ready to act,” said Mr John Plassard, equity sales trader at Mirabaud Securities.

“We are probably going to have looser policy settings than before the vote,” said Mr Tim Schroeders, a portfolio manager at Pengana Capital.

In Asia, share markets continued to stabilise and finished narrowly mixed, with China’s Shanghai Composite Index ending up 0.6 per cent, Japan’s Nikkei-225 inching up 0.1 per cent and the Straits Times Index rising 1 per cent. The Chinese central bank helped lift the mood yesterday by saying market expectations for the yuan were stable in the wake of the Brexit vote, while Premier Li Keqiang said China would be able to maintain economic stability despite global financial markets being clobbered.

Singapore’s Minister for Trade and Industry (Industry) Lim Hng Kiang said the Monetary Authority of Singapore had been prepared for this Brexit outcome and had taken precautionary measures, including keeping in close contact with banks in Singapore, foreign central banks and regulators.

“Our markets continue to function in an orderly manner and our financial system remains sound,” he said at the Association of Banks in Singapore’s 43rd annual dinner yesterday.

He warned that Brexit would very likely continue to reverberate across financial markets around the world and will have wider economic implications for the region and Singapore beyond the immediate market turbulence.

“While it is too early to make a firm call on the longer-term consequences of the event, it will certainly weigh on both market confidence and on an already listless global recovery.” AGENCIES