Global equities and the British pound finally caught a break on Tuesday, as markets recovered ground from two days of devastation after Britain’s Brexit vote.
Such a respite is unlikely to last long, however, as fractious comments by British and European politicians in Brussels hinted at further volatility to come.
Sterling held firm, gaining about 1 per cent against the dollar and about 0.3 per cent against the euro, following a plunge of about 20 per cent against the greenback in the immediate aftermath of the vote.
US and European bourses rallied on better-than-expected GDP growth in the US, with investors tucking in to perceived bargains, following a global sell-off that wiped nearly US$4 trillion off the value of equities in just two days.
The Euro Stoxx 50 surged 3.3 per cent on Tuesday, with the FTSE 100 trading at about 2.9 per cent higher before the close. The S&P 500 opened 1.1 per cent higher.
But such gains fell well short of recovering market losses sustained since Thursday’s vote. Several experts dismissed on Tuesday’s rises as a “dead cat bounce”, and warned that the sterling is not out of the woods by any stretch.
“It seems there’s very little news to support the currency at the moment, and UK prime minister David Cameron’s proposal on Tuesday not to trigger Article 50 will only lead to a prolonged period of uncertainty, exposing the pound to more downside risk,” said Hussein Sayed, the chief market strategist at foreign exchange brokers FXTM.
Article 50 of the Lisbon treaty needs to be triggered to start breakaway talks from the EU, and it is unclear when the UK plans to submit the papers.
A further drop of between 5 and 10 per cent in the currency’s value by the middle of July is not to be ruled out, Mr Sayed said.
Comments by European leaders highlighted the scale of the challenges facing the UK and the EU, ahead of crisis talks in Brussels. German chancellor Angela Merkel said that the UK should not expect favoured treatment once it leaves the economic bloc, in a speech to Germany’s parliament.
“We will ensure the cherry-picking principle won’t apply in the negotiations,” Ms Merkel said. “There must be – and there will be – a palpable difference between a country that wants to be part of the European Union and one that doesn’t.” Addressing the European parliament in Brussels on Tuesday, the president of the European Commission, Jean-Claude Juncker, urged the UK to clarify its position on its exit from the EU as soon as possible.
There were angry scenes in the European parliament as Nigel Farage, the leader of the anti-EU UK Independence Party, told members that they were “in denial” about the EU’s failings. Amid a chorus of boos, Mr Farage claimed the EU had more to lose than Britain if the bloc hindered trade with the UK.
Meanwhile, shares across the Arabian Gulf were little changed on the day as volumes dropped back toward Ramadan levels, with Bloomberg’s GCC 200 Index up by just 0.02 per cent.
The Dubai Financial Market General Index ended 0.06 per cent lower at 3,283.92, with gains by DIB and Dubai Investments cancelled out by falls by Mashreq Bank and Emaar Malls. The Abu Dhabi Index shares ended 0.61 per cent lower at 4,407.16, dragged by FGB and ADCB.
jeverington@thentional.ae
* with agencies
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