World stocks rebound, but traders cautious
Fin 24 - Jul 7th 2016, 13:19
London - Signals from the Federal Reserve that US rates will stay on hold boosted stocks and offered the British pound some much-needed respite Thursday following several days of Brexit-related losses.
Fed policymakers were split on interest rate policy at their June meeting, minutes released on Wednesday, leading analysts to conclude that no rate hike is looming.
This caused the dollar to soften, offering the British pound some relief after the battering it received following Britain's shock vote to leave the EU.
"Equity markets have been given a reprieve from this week's selling this morning, buoyed by the dovish nature of last month's Federal Reserve meeting minutes," said Cantor Fitzgerald analysts in a note.
Fed members concluded "it was prudent to wait to raise interest rates",they said.
Equity markets, starting with Wall Street, breathed a sigh of relief. Many analysts, still stunned by the uncertainties created by Brexit, believe that the world economy needs easier, not tighter, credit conditions until the British referendum's implications are sorted out.
European stocks markets rose by up to two percent in response in early business, reversing a three-day losing run.
Banking stocks across Europe firmed, but the financial sector remains under pressure after the European Central Bank warned that Italy's number-three lender and the world's oldest bank had dangerously high levels of bad debt.
French food giant Danone saw a hefty share price rise in Paris after it agreed to buy US organic foods producer WhiteWave Foods with a view to creating a world leader for organic produce.
But while a sliver of positivity has returned to equities, currency traders continue to look for safe havens such as the yen, while the pound remains fragile.
"It may not be great news that the Fed are too scared to act, but investors seem to be taking silver linings wherever they can find them," noted Connor Campbell, an analyst at Spreadex.
While the growth-friendly stance of the Fed diverted some attention away from the headache for markets that is Brexit, investors are far from reassured.
France warned on Thursday that Brexit may cost France, which is already struggling to rekindle growth, up to 0.2 percentage points of annual GDP growth.
"A fall in growth and business activity in Britain could have an impact of between 0.1 and 0.2 points of GDP as specialists have said," junior budget minister Christian Eckert told the LCP television station.
The pound managed to hold up against the dollar, having recovered marginally from hitting a 31-year low Wednesday although uncertainty over Britain's future is keeping downside pressure on sterling.
Asian markets also rebounded, having gone into freefall over the previous two days after the head of the Bank of England said the risks of leaving the EU were "crystalising" while a string of commercial property funds prevented clients from withdrawing cash to prevent a run.
Traders took the opportunity to pick up some bargains after the sell-off, helped by gains on Wall Street where a strong reading on the US services sector also provided some much-needed cheer.
Hong Kong rose one percent, Sydney added 0.6% and Seoul 1.1%, while there were also advances in Taipei, Bangkok and Wellington. However, Tokyo closed down 0.7%.From Fin24
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