Market chaos over Brexit lessens but investors remain nervous

Market concerns dissipated somewhat on Friday after UK prime minister Theresa May received support from key Brexiteers including Michael Gove and reappointed pro-remain MP Amber Rudd to cabinet.

Almost €230 million was added to the market value of Ireland’s main Iseq overall index after it was battered on Thursday, losing €3.3 billion of its value.

Although commentators warned about reading too much into the movement of the Iseq considering Kerry Group, CRH and Paddy Power make up 50 per cent of the index.

"People can get a bit excited about the movements," said Investec Ireland chief economist Philip O'Sullivan.

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“The reality is that several billion euro was wiped off the market yesterday but we’ve a far more stable backdrop to the market today with increasing signs that risk is dropping away in the UK.”

The Iseq rose 0.9 per cent on Friday, although Mr O’Sullivan said “the extent to which you can discern meaning from an index with 50 or so companies is limited”.

Bank of Ireland, which suffered significantly on Tuesday, closed lower by just 0.17 per cent while housebuilders in Ireland gained on the day. Glenveagh Properties rose 5.07 per cent while Cairn Homes advanced 2 per cent.

Currency markets were far more volatile on the day although the pound found some solace after having suffered its largest one-day drop in two years against the euro on Thursday.

Sterling fell 0.25 per cent toward the end of the day having swung considerably.

Volatility

Market commentators suggested despite relative calmness on Friday, volatility is likely to remain at least until an EU summit to be held on November 25th.

"We were out on the weaker end of the range from a sterling perspective. This is around the focus shifting a little a little from a leadership challenge to a parliamentary vote as we head into next week," said Bank of Ireland head of foreign exchange and emerging market, Philip Hartley.

While sterling remained strong, in that it didn’t drop to October lows against the euro, it moved within a large range on the day.

“It’s been more of a day of consolidation after the events of the last 72 hours,” Mr Hartley said, adding that “volatility has certainly picked up and it will remain elevated next week”.

Theresa May's vow to stick to her Brexit plan buoyed the pound against the dollar but British stocks were hit with the FTSE 350 falling 0.35 per cent. As in Ireland, banks were among the losers.

Investors now await political movements next week which could determine the fate of Ms May’s premiership and the direction of her Brexit deal. Mr O’Sullivan pointed out that “the fact they spent the whole day trying to figure out whether they had the 48 letters” needed to have a leadership challenge bodes well for Ms May.

In any event, the fact of Michael Gove’s support and Amber Rudd’s return shows “the prime minister does not feel she’ll be beholden to the more dogmatic members of her party,” Mr O’Sullivan said.