Sterling and shares gain as way cleared for new UK prime minister

A third day of gains has put the UK’s FTSE 100 Index on course to close in bull-market territory, with Irish share prices also on the rise.Sterling has also steadied as markets took on a more positive tone.

After recovering from its post-Brexit plunge in just four days, the FTSE 100 – which measures the biggest market shares – continued its rally, and is now up 20 per cent from its February low. The ISEQ index, one of the biggest losers after Brexit, gained 1.5 per cent this morning , while European markets were up on average by 1.2 per cent. In Dublin, Bank of Ireland gained 4.6 per cent to 18.2 cent by lunchtime.

Markets opened the week taking a more relaxed view of the fall-out from Brexit. This was helped by expectations that the Bank of England, meeting on Thursday, would reduce its base interest rate from 0.5 per cent to 0.25 per cent.

Plunge

A dramatic plunge in the pound has made the FTSE’s multinational companies more attractive since the country’s vote to leave the European Union. Analysts have joined investors and strategists in taking note, boosting profit-growth estimates for FTSE 100 members by about 4.5 per cent in just over a week, the biggest such upgrade in more than a decade.

However sterling steadied on Monday, rising 0.2 per cent to $1.2982 . The pound rose and the FTSE 100 extended gains after Andrea Leadsom pulled out of the race to become the UK's next prime minister, paving the way for home secretary Theresa May. The gauge rose 0.9 percent to its highest level since August, boosted by rising commodity producers and a rebound in homebuilders.

Taylor Wimpey and Barratt Developments climbed more than 6 per cent, while Glencore and Anglo American tracked metal prices higher.

“The big decline in sterling has been a very supportive factor for the valuation of the FTSE,” said Guy Foster, head of research at Brewin Dolphin in London.

“The FTSE is not really a gauge of the UK economy but is much more a gauge of how much UK investors value overseas revenues. It’s still quite some distance from the highs we saw at the beginning of last year, and there is plenty of space to move into a few key resistance levels before we get there.”

Ratings

HSBC Holdings and Citigroup are among banks that raised their ratings on Britain’s biggest companies after the referendum, while JPMorgan Chase and Societe Generale said they’re still bullish. The Bank of England has pledged to shore up financial stability as business and consumer confidence plunge.

Sterling advanced today, reversing an earlier decline after news of Ms Leadsom’s withdrawal. It fell to its lowest level since 1985 last week and is still well below levels at which it was trading before the Brexit vote.

While the gauge of the largest UK companies is up 6.6 per cent this year, the FTSE 250 Index of mid-cap firms, more dependent on the domestic economy, remains 5.1 per cent lower.

Real estate companies, insurers and banks are still down at least 9 per cent since the day of the referendum.The FTSE 100 is the first among its major European peers to enter a bull market.

Germany’s DAX Index was heading for one back in April, but a global stock pullout as the Brexit vote approached halted its rally. It’s now just 12 per cent above its February low, while France’s CAC 40 Index has risen about 9 per cent.

While the FTSE 100 is the the third-best performer among developed markets this year in local currency, looking at it in dollar terms reveals a different picture: it’s down 7.9 percent since June 23rd, a bigger drop than the regional Stoxx Europe 600 Index.

The S&P 500 Index has risen 0.8 percent in the period. That implies a significant loss for foreign investors, who own more than half of the nation’s shares, according to the latest available data from the Office for National Statistics

– Bloomberg /additional reporting Irish Times business staff.