World stocks build on post-Brexit rebound

Global stock prices rose in a second day of recovery from a sharp sell-off prompted by Britain’s vote to leave the European Union.
Asian markets led the way on hopes that authorities will unveil fresh stimulus to counter the effects of the shock result.
Europe followed suit, encouraged by a recovering pound, as did Wall Street, but analysts warned of jitters ahead depending on the shape of ongoing political dealings between Britain and its EU partners.
“First the panic effect, then the rebound. That’s a well-known mechanism on financial markets,” said Christopher Dembik, an economist at Saxo Banque in Paris.
“But we also know that, after the rebound, volatility can re-emerge, and that is the main risk right now,” he said.
“The markets aren’t calm, we are in the eye of the storm,” said Adam Jepsen at Financialspreads, adding that “not a single issue” had been resolved.
“I will be surprised if the markets remain calm for more than a day or two,” he said.
Symptomatic of Brexit’s still uncertain impact, British telecoms giant Vodafone warned that the future of its London-based headquarters was now in doubt.
Meanwhile, the London and Paris stock markets jumped more than two percent, with Frankfurt’s gain at over 1.6 percent, as data showed German inflation picking up moderately in June.
The British pound rose to $1.3492, after plunging to Monday’s 31-year-low of $1.3121.
Moneycorp dealers said sterling did “at last seem to have exhausted the supply of aggressive sellers.”
European debt markets also showed signs of calming down.
Money flowed out of safe-haven German government bonds into sovereign bonds on the eurozone’s southern periphery, with Spanish and Italian bond yields easing and those in Germany edging higher.
“The excesses seen after Brexit are slowly being corrected,” analysts at BNP Paribas said, adding that the German 10-year government yield, although still negative, could be heading toward -0.05 percent from Wednesday’s -0.10 percent.
Tracking equity markets, oil prices also extended gains, with key US stocks data due later in the day.
Asia’s gains built on the previous day’s advance, after South Korea unveiled a $17-billion (15.3-billion-euro) plan to support its already fragile economy and news emerged that Japan was considering a similar move.
Before the Tokyo exchange opened, Prime Minister Shinzo Abe, Finance Minister Taro Aso and Bank of Japan chief Haruhiko Kuroda held talks on containing the Brexit crisis.
Japan’s Nikkei ended 1.6 percent higher, Shanghai gained 0.7 percent by the close, while Hong Kong finished up 1.3 percent.
Stephen Innes, senior trader at OANDA Asia Pacific, warned: “This relative calm is unnerving, given how fragile investor sentiment is, and the likelihood of renewed (pound) volatility.
“As a result, FX markets should remain a hot spot for the foreseeable future. Liquidity is gradually improving and appears to have weathered the initial Brexit sell-off.”
Attention is now on how Britain negotiates its way out of the EU after four decades of partnership.
Adding to the uncertainty is the fact Prime Minister David Cameron will stand down in the coming months, leaving his successor to hammer out the deal.
Meeting in Brussels, impatient EU leaders Tuesday called on Cameron to speed up the split and warned Britain cannot expect special treatment outside the bloc.
German Chancellor Angela Merkel warned he could not “cherry-pick” in the exit negotiations — and there would be a price for Britain to pay.

Source: Arab News