Europe open: Stocks bounce back from Brexit-fuelled losses
European stocks rose in early trade, rebounding from two days of heavy losses fuelled by Britain’s decision to leave the European Union, as the pound came off its lows.
At 0900 BST, the benchmark Stoxx Europe 600 index was up 2.2%, Germany’s DAX was up 2.1% and France’s CAC 40 was 2.3% higher.
London’s FTSE 100 was 2% higher, while the more domestically-focused FTSE 250 – which was hit harder post Brexit – was 3% firmer.
Italy’s FTSE MIB was up 2.6% as the government there considered a €40bn capital injection for the country’s banks. Intesa Sanpaolo was up 6.9% while UniCredit gained 7.7%.
Overall, the Stoxx 600 banks index, which took a battering in the last two sessions, was up 3.2%.
At the same time, oil prices advanced, with West Texas Intermediate up 2.2% to $47.35 a barrel and Brent crude up 2% at $48.12. Prices were supported by the possibility of a strike in Norway, where workers on oil and gas fields could go on strike from Saturday if they do not agree a wage deal.
In currency markets, the pound was recovering somewhat after hitting fresh 31-year lows on Monday, trading up 1% against the dollar at $1.3347.
Hussein Sayed, chief market strategist at FXTM, said: “It might look very attractive to buy a major currency which has fallen by more than 11% in two trading days and is currently standing at its lowest levels in more than three decades. However, it might not be the case that sterling has reached its bottom just yet.
“It seems there is very little news to support the currency at the moment, and David Cameron’s proposal yesterday not to trigger Article 50 will only lead to a prolonged period of uncertainty, exposing the Pound to more downside risk. I would say another 5-10% drop from current levels can’t be ruled out in the next couple of weeks.”
EU leaders are due to meet in Brussels later on Tuesday, so investors will eye any developments from there, with Prime Minister David Cameron expected to be pressured to trigger Article 50.
CMC Markets’ Michael Hewson said: “Later today Prime Minister David Cameron will be heading to Brussels to attend a meeting of EU leaders in the wake of last week’s vote and while his reception is probably likely to be chilly, there will probably also be some light hearted mentions of last night’s embarrassment on the football fields of France, as England lost to Iceland.
Despite the upbeat tone in financial markets, some analysts were sceptical that the gains could be sustained.
Lee Wild, head of equity strategy at Interactive Investor, said: “There is still no obvious reason to buy stocks in a big way given a lack of clarity over Britain’s future relationship with Europe, and this could be an example of short-covering. Shares certainly look cheap on paper, but the true impact of Brexit on company profits remains a great unknown. Dividend forecasts are being scaled back, too, and there’s a sense that prices could go lower before we see broad-based buying.”
In corporate news, defence and aerospace group Rolls-Royce was on the front foot after saying the UK's decision to leave the EU would not have an immediate impact on day-to-day business, adding that it remains committed to the UK “where we are headquartered, directly employ over 23,000 talented and committed workers and where we carry out a significant majority of our research and development”.
Housebuilder Redrow was sharply higher after saying it expects pre-tax profit for the year to be above the top end of analysts’ estimates, which currently stand at £240m.
Nestle rallied after it named Ulf Mark Schneider as successor to chief executive Paul Bulcke.
On the macroeconomic calendar, the third release of first-quarter US GDP is at 1330 BST. S&P Case-Shiller house prices are at 1400 BST, while US consumer confidence is at 1500 BST.