A global stocks rally gathered steam Monday, fueled by economic optimism, while the British foreign minister’s sudden resignation over Brexit depressed the pound.
Key European equity markets closed higher, extending last week gains after Friday’s solid US jobs report boosted confidence in the American economy and helped soothe trade war nerves.
Wall Street built on opening gains throughout the morning, with the Dow finishing up an impressive 1.3 percent.
Analysts at Charles Schwab credited the US jobs report with fanning ‘global economic optimism’ allowing investors to take a welcome breather from festering trade war concerns which have dogged markets for months.
And the optimism comes despite the fact Washington rolled out tariffs on $34 billion of Chinese goods Friday, sparking retaliatory measures from Beijing.
Sterling yo-yo
The British pound meanwhile had a rollercoaster session.
It rose initially on news that Prime Minister Theresa May’s Brexit minister David Davis had resigned.
Analysts said the news persuaded many investors that Britain could be heading towards a so-called ‘soft’ Brexit, and that took sterling to a one-month high against the dollar above $1.33.
But when Boris Johnson also resigned as foreign minister, the currency took an abrupt downward turn as the markets went into political crisis mode.
‘There’s been some swift downside seen in the pound in recent trade with the currency coming under pressure after another key politician has resigned,’ said David Cheetham, chief market analyst at XTB.
Calling Johnson’s departure a ‘significant event from a market standpoint and something of a shock,’ Cheetham said the chances of a challenge to May’s leadership ‘have now increased markedly.’
Lukman Otunuga, a research analyst at FXTM, said fears of an early British general election had now crept into the market.
‘Market uncertainty over Brexit has reached new heights after Boris Johnson resigned as Foreign Secretary this afternoon,’ Otunuga said.
‘Heavy losses’ ahead?
Brexit uncertainty could well delay Bank of England interest rate increases, he said, expectations of which had been bolstering the pound.
‘If expectations continue to diminish over the central bank raising UK interest rates, sterling is at risk of experiencing heavy losses down the road,’ he said.
Sterling’s weakness, however, helped make London’s FTSE stock market index the European star performer, as shares in British multinationals gained from a falling currency which typically boosts their bottom line.
US stocks for their part continued to push higher on Monday, with especially robust gains for Dow members Boeing and Caterpillar, two major exporters to China.
‘The message would appear to be that markets are not concerned about a full-fledged trading war breaking out,’ said Briefing.com analyst Patrick O’Hare, adding that the market is also ‘fickle.’
‘You are one tweet away from all of this being turned on its ear,’ he said.
Key figures around 2030 GMT
New York – Dow: UP 1.3 percent at 24,776.59 (close)
New York – S&P 500: UP 0.9 percent at 2,784.17 (close)
New York – Nasdaq: UP 0.9 percent at 7,756.20 (close)
London – FTSE 100: UP 0.9 percent at 7,687.99 points (close)
Frankfurt – DAX 30: UP 0.4 percent at 12,543.89 (close)
Paris – CAC 40: UP 0.4 percent at 5,398.11 (close)
EURO STOXX 50: UP 0.5 percent at 3,464.50 (close)
Tokyo – Nikkei 225: UP 1.2 percent at 22,052.18 (close)
Hong Kong – Hang Seng: UP 1.3 percent at 28,688.50 (close)
Shanghai – Composite: UP 2.5 percent at 2,815.11 (close)
Euro/dollar: UP at $1.1748 from $1.1746 at 2030 GMT Thursday
Pound/dollar: DOWN at $1.3246 from $1.3283
Dollar/yen: UP at 110.82 yen from 110.47 yen
Oil – Brent Crude: UP 96 cents at $78.07 per barrel
Oil – West Texas Intermediate: UP 5 cents at $73.85 per barrel
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