The confirmation of a new UK Prime Minister has offered some welcome certainty in uncertain times. Theresa May as PM has produced no Mayday calls in markets. The “safe hands” of Mrs May at the helm has actually reduced distress signals. The pound has risen over 1% against the dollar today, adding to yesterday’s gains when Andrea Leadsom ended her campaign to become the Tory party leader.
The certainty of Theresa May stepping into the top job in UK politics ahead of schedule has had the perhaps unintuitive effect of weighing on UK stocks. It was the drop in the sterling that cushioned the ‘Brexit blow’ because of its positive effect on UK company foreign earnings. Subsequently, the rebound in the pound is weighing on the FTSE 100, notably the big multinationals including Vodafone (LON:VOD), GlaxoSmithKline (LON:GSK) and Diageo (LON:DGE).
The sustainability of sterling strength will be tested when BOE Governor Mark Carney speaks to MPs at 10am BST as part of the Financial Policy Committee.
The biggest Brexit losers of Banks and Homebuilders are top performers on the FTSE, helped by receding expectations of a rate cut from the Bank of England. That ‘market risk’ stopped US money laundering charges against HSBC (LON:HSBA) does support banks’ “too big to jail” status, making them a safer investment.
European markets are broadly stronger, tracking sharp gains in Asia on hopes of more stimulus in Japan. The Japanese yen is falling since fiscal stimulus could pre-empt further easing from the Bank of Japan later this month. Japanese Cabinet Secretary Suga has said Prime Minister Shinzo Abe has already ordered a new economic stimulus package. Forecasts are in the range of 10 trillion yen for the size of the stimulus package so anything less could be taken as a disappointment.
US stocks looks set for a higher open with the S&P 500 expected to hit a new record intraday high buoyed by a rise in oil prices, expectations of stimulus in Japan and the UK and Alcoa (NYSE:AA) beating quarterly earnings expectations.
USA pre-opening levels
S&P 500: 7 points higher at 2,145
Dow Jones: 77 points higher at 18,303
Nasdaq 100: 23 points higher at 4,577
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