European stock indices are now up again after initial declines, as the volatility in the immediate wake of the Brexit vote continues to fade.
We’ve had a two-day relief rally driven by hopes rise that central bankers will do what is needed to soothe the impact of Brexit. Bank of England Governor Mark Carney is first up, and will speak with press and members of the finance industry this afternoon. This speech may go a long way to reassuring investors fearful about the power vacuum in Westminster and the lack of any communication from the Leave campaign since the Brexit vote.
Carney’s rapid moves to do what it takes to soothe markets is in stark contrast to the delayed and stuttering response by the Bank of England during the financial crisis.
Still, there’s no doubt markets remain fragile, and that’s also reflected in a further rise in the Japanese yen and a drop in oil prices. The nervousness is also evident in moves in the Chinese yuan, which touched its lowest level since January overnight on reports that the People’s Bank of China is prepared to allow more weakness in the currency. It has since rebounded as investors questioned the reports.
US President Barack Obama warned overnight that the Brexit vote raises long-term concerns about global growth, although he also reiterated that central banks and finance ministers are prepared to hold the global economy steady in the short-run.
The pound is also steadier after the big swings of recent days, although it’s still down about 10% against the US dollar compared with pre-Brexit. The question now is whether it has found a new level, or whether we’ll see a continued decline against the dollar as the impact of Brexit starts to show in economic data.
Banks and housebuilders are amongst the worst performing stocks in the FTSE 100 again this morning, while a rise in metals and commodities prices is aiding the likes of Anglo American and Glencore.
Ahead of the open we expect the Dow Jones to start 48 points higher, at 17,742.