Friday, February 3, 2023

Brexit: UK markets recover on first full day of trading after deal | Brexit news

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The pound rallied, the FTSE 100 index rose the most in nearly two months, and long-term sterling corporate bonds dominated their peers on Tuesday.

Investors have flocked to UK markets on the first full day of trading since a Brexit deal ended years of uncertainty over the country’s economic future.

The pound rallied, the FTSE 100 index rose the most in nearly two months, and long-term sterling corporate bonds dominated their peers on Tuesday. For now, investors are generally putting aside concerns about the deal, which will not extend to the UK’s financial sector or critical services sector.

It was the first open market for British stocks and bonds since Britain and the European Union finalized their future trade relations on Thursday, avoiding the risk of a chaotic divorce this week. Confidence between the markets was also boosted by a deal on the US stimulus.

“I would expect UK assets to outperform and the pound as well, although the shortcomings of the deal are highlighted by everyone,” said Mark Nash, head of bond alternatives at Jupiter Asset Management.

A trade deal avoided a worst-case scenario for Britain’s economy, which would have subjected it to World Trade Organization terms and slashed gross domestic product by 1.5% next year, according to Bloomberg Economics.

Stock relief

Tuesday’s relief was palpable. The FTSE 100 index climbed to 2.7% in London as the UK stock market reopened after the Christmas break, on the verge of its highest close in nearly nine months.

The UK has been the worst performing among major stock markets since the 2016 Brexit referendum. For investors who have avoided UK stocks, the cheap may be appealing as value stocks should shine over the course of the year. the year to come.

“A trade deal gives us more confidence in our bullish outlook on UK equities,” UBS Group AG strategists led by Nick Nelson wrote in a note, predicting the FTSE 100 will end at 7,200, or around 11% more than his last closing.

Outperformers included outsourcing companies such as Capita Plc and Babcock International Group Plc, owners including British Land Co. Plc and insurers Aviva Plc and Legal & General Group Plc. Travel shares also climbed, with TUI AG up 11%, while lenders such as Lloyds Banking Group Plc lagged behind.

The pound briefly led its peers to climb 0.5% to $ 1.3523, before parrying the gains. While the currency has steadily gained ground in recent months, the recovery leaves it well outside the $ 1.50 level seen before the Brexit vote. The country still faces a spike in Covid-19 cases and a grim economic outlook.

The Toronto-Dominion Bank remains in the “rally selling camp” and sees the currency drop to $ 1.30, according to Ned Rumpeltin, its European head of foreign exchange strategy.

There are also signs of caution in the government bond market. Gilts rallied, pushing two-year yields to a new record high and benchmark rates down five basis points.

“The market is not happy with the Brexit deal,” said Althea Spinozzi, bond strategist at Saxo Bank A / S. “We could see yields fall further due to a mix of a deal not so important on Brexit, an increase in coronavirus cases and the next prolonged recession. “

Long-term sterling notes also rose the most in the European corporate bond market on Tuesday, boosted by falling gilt yields. A 2117 rating from the University of Oxford and a 2052 issue from Southern Water saw the largest price increases among interest rate sensitive long bonds.

Simon Harvey, currency analyst at Monex Europe, said markets are still trying to decide the price of UK assets.

“Having to do it with thin liquidity conditions means it’s like trying to hit a moving target,” he said. “I don’t think we’ll really see the true post-Brexit level until the markets fully return on January 4.”


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