24th Jun 2016 16:09
LONDON (Alliance News) - A historic vote that saw the UK decide to leave the European Union sent shares lower on Friday, in a dramatic trading session that still ended with the FTSE 100 blue-chip index closing the week higher after recovering from lows shortly after the market open.
Financial stocks and housebuilders were among the worst hit stocks in wake of the vote. The recovery in the blue-chip index was led by gold miners after a rise in the precious metal's price and companies with high international exposure, which benefited from a decline in the pound.
Central banks such as the Bank of England, the European Central Bank and the US Federal Reserve reacted to the outcome of the vote by pledging that they were ready to provide additional liquidity in their own currencies as well as in others.
The FTSE 100 finished down 3.2%, or 199.41 points, at 6,138.69. The FTSE 250 fell 7.2%, or 1,245.46, to 16,088.05, while the AIM All-Share dropped 3.2%, or 23.11 points, to 703.81.
The blue-chip index fell as much as 8.9% after the open, with the final result of the vote still fresh. The Leave campaign secured 52% of the vote, beating the 48% achieved by Remain, with the result confirmed at Manchester Town Hall by chief counting officer Jenny Watson at around 0720 BST. Voter turnout hit 72%, second only to the 1992 General Election in terms of the largest number of voters taking part.
The Leave side outperformed across the regions of England and defied the pre-vote polling and forecasts, surprising both the markets and the bookmakers. Remain won in London and Scotland. Cameron, who had campaigned for the UK to remain in the EU, said he will step down as prime minister by October. A new prime minister paves the way for the UK to begin negotiating its exit from the EU, Cameron said.
Although the FTSE 100 fell to levels it hadn't seen since February, the subsequent recovery helped it to end 2.0% higher for the week.
SpreadeEx analyst Connor Campbell said housebuilders took a hit "in anticipation of the oft-repeated warning of a post-Brexit house price plunge".
The FTSE 350 Real Estate Investment Trust sector index ended down 15%, having traded down 26% at the open. The FTSE 350 House Goods & Home Construction sector index was off 10%, recovering from being 16% down shortly after the open.
Liberum analyst Charlie Campbell said the outcome of the vote "is bad for housebuilders' shares as the combination of slowing GDP, rising longer term rates and political uncertainty is like Kryptonite for that group of shares".
Financial stocks such as banks and life insurers also took a hit. The FTSE 350 Life Insurance/Assurance sector index fell 13%, having traded down by as much as 22% at the London open. The FTSE 350 Banks sector dropped 10%, recovering from a 17% hit shortly after the open.
Moody's Investors Service, the credit ratings agency, said the vote is credit negative for UK sovereign and other rated entities and will lead to "prolonged" uncertainty that will weigh on the country's economic and financial performance. Moody's currently rates the UK Aa1 with a stable rating.
Faced with a sea of red at the open, investors soon saw stocks with strong exposure outside of the UK, alongside gold miners, drive a recovery in the FTSE 100 shortly afterwards, helping the blue-chip index to recover most of the ground it had lost.
Societe Generale recommended to its clients protecting portfolios by buying defensive UK stocks with high international exposure. Among these were Unilever, up 2.5%, British American Tobacco, up 2.6%, Burberry Group, up 2.5% and Reckitt Benckiser, up 2.1%. All of those companies are in SocGen's Cable basket of stocks that are highly sensitive to a fall in the pound. SocGen noted the Cable basket "has shown a 90% correlation to the GBP/USD since January 2013".
Gold miners such as Randgold Resources, up 21%, and Fresnillo, up 12%, benefited from a rise in the precious metal's price. Gold was quoted at USD1,317.55 an ounce at the London equities close, having reached a 2016 high earlier Friday at USD1,358.19 an ounce. It stood at USD1,265.12 at the close Thursday.
Conversely, Brent oil ended lower, with the North Sea Benchmark quoted at USD48.72 a barrel at the London equities close. Brent stood at USD50.43 a barrel at the same stage Thursday.
BoE Governor Mark Carney said the central bank was "well prepared" following the Leave vote, noting that "some market and economic volatility can be expected as this process unfolds".
The BoE said in a statement that, "as a backstop, and to support the functioning of markets", it was ready to provide more than GBP250 billion of additional funds through the central bank's normal facilities.
The pound was recovering some of the ground lost after touching a low of USD1.3227 in early trade, a level it hadn't seen since 1985. At the equities close, sterling was standing at USD1.3625, compared to USD1.4800 at the London equities close on Thursday.
The ECB also issued a statement following the vote, saying that it is closely monitoring financial markets and is in close contact with other central banks. "The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies," the bank said in a statement on its website.
The euro also fell against the dollar, with the single currency quoted at USD1.1115 at the equities close. However, it recovered from a low of USD1.0911 earlier Friday, a level it hasn't seen since March. On Thursday at the European equities close, the euro stood at USD1.1366.
Stocks in Europe also ended off their worst levels of the session. The CAC 40 index in Paris fell 6.8%, while the DAX 30 in Frankfurt dropped 5.8%.
Meanwhile, the Fed echoed the ECB and the BoE, saying that it was "prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets". Fed Chair Janet Yellen had warned on Tuesday that a vote to Leave by the UK could have "significant economic repercussions".
In New York, stocks were following Europe lower, with the Dow 30 down 2.7%, the S&P 500 down 2.8% and the Nasdaq Composite down 3.2%.
In London, International Consolidated Airlines Group issued a profit warning for 2016. The airline operator - which owns British Airways, Ireland's Aer Lingus, and Spanish carriers Iberia and Vueling - said it doesn't believe the UK's decision to leave the EU will have a long-term material impact on its business, but noted that it experienced weaker-than-expected trading in the run-up to the referendum. IAG ended down 20%.
Meanwhile, London Stock Exchange Group and Deutsche Boerse said they are committed to their planned merger. The two companies had previously said the merger was not conditional on the outcome of the vote. However, the workers of Deutsche Boerse called for Frankfurt to be the legal headquarters of the planned venture.
"We are not calling for the merger to end, but that the main headquarters has to move to Frankfurt," said Jutta Stuhlfauth, the chair of the workers council. In face of the Britain's coming exit from the EU, it would be "absurd to move headquarters to London," she noted. Shares in LSE fell 11%.
Meanwhile, Steinhoff International Holdings said Poundland Group has not accepted Steinhoff's proposal of a possible cash offer for the discount retailer.
The South African furniture retailer said it noted the release of Poundland's full-year results last week, the recent movement in Poundland's share price, and the impact of the UK vote to leave the European Union on global markets. Poundland shares closed down 5.9%.
In the UK corporate calendar Monday, NextEnergy Solar Fund and Sepura release full-year results. One Media IP Group and Porvair publish half-year results, while Ultra Electronics Holdings issues a trading statement.
In the economic calendar, Germany's import price index is at 0700 BST. In the US, the goods trade balance is at 1330 BST, while Markit's services and composite purchasing managers index is at 1445 BST.
By Daniel Ruiz; [email protected]
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