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Global stocks in recovery with post-Brexit rebound

by June 29, 2016 General

June 30, 2016, 12:30 am TWN

LONDON — Global stock prices rose Wednesday 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 vote.

Europe followed suit, encouraged by a recovering pound, but analysts warned of a 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.

‘Eye of storm’

“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.

Meanwhile, the London and Paris stock markets rose by well over 2 percent, with Frankfurt’s gains closely behind.

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, saying that the German 10-year government yield, although still negative, could be heading toward -0.05 percent from Wednesday’s -0.10 percent.

In Asia, Wednesday’s gains built on the previous day’s advance after South Korea unveiled a US$17 billion 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 and Shanghai gained 0.7 percent by the close.

Hong Kong finished up 1.3 percent and Sydney was 0.8 percent higher. Seoul, Singapore, Wellington, Manila, and Jakarta each put on more than one percent.

‘Unnerving calm’

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.”