Stocks rally as panic subsides

European and Asian stock markets built on a recovery from the shattering aftermath of last week's Brexit vote. Investors wagered central banks would ultimately ride to the rescue with more stimulus.
The New York Stock Exchange in lower Manhattan, New York, on May 16.
The New York Stock Exchange in lower Manhattan, New York, on May 16.PHOTO: AFP

LONDON • Global stocks rallied for a second day and the US dollar weakened amid speculation that policymakers will mitigate the damage of the United Kingdom's vote to leave the European Union (EU), including a pause in the Federal Reserve's tightening cycle.

Stock markets in Frankfurt, Paris and London all gained more than 2 per cent in morning trade while emerging market bourses and currencies rose amid speculation that regional nations will follow South Korea's lead in boosting stimulus after Brexit.

The FTSE 100 Index added 2.1 per cent and was within 1.1 per cent of its pre-Brexit close.

The pound erased earlier losses, rising 0.6 per cent to US$1.3418 as of 12.52 pm in London. Oil climbed above US$48 a barrel and gold gained.

Wall Street opened sharply higher as the initial panic surrounding Brexit settled and investors looked for bargains among beaten-down stocks.

The S&P financial stocks index, which was hit the most since the referendum, was up 1.27 per cent. The Dow Jones Industrial Average was up 0.82 per cent and the Nasdaq Composite was up 1.04 per cent.

At the heart of the recovery are expectations that the world's major central banks will go easier on monetary policy over the next six months in anticipation of another hit to global growth from Europe. The odds indicated the Federal Reserve is more likely to cut rates than raise them over the rest of the year. 

Traders said there was much talk, particularly outside the UK, of ways in which Britain could renege on the results of the referendum to which no politician has given credence.

But either way markets face a prolonged period in limbo while a new UK prime minister is selected and officials get to grips with the possible scenarios for Britain's departure.

"Markets have calmed down somewhat," said Mr Thu Lan Nguyen, a foreign exchange strategist at Commerzbank. He predicted some continuation of the recovery in the pound if the UK gets a prime minister who can secure access to the single market.

BLOOMBERG, REUTERS 

A version of this article appeared in the print edition of The Straits Times on June 30, 2016, with the headline 'Stocks rally as panic subsides'. Print Edition | Subscribe