PA ANALYSIS: Markets buoyed by rate cut hopes

Added 7th July 2016

Risk assets were on the bounce on Thursday as European markets rebounded somewhat following a tough few weeks.

PA ANALYSIS: Markets buoyed by rate cut hopes

The FTSE 100 was up just over 1%, while the FTSE 250 was up 1.7%, the CAC 40 0.75% and the Euro Stoxx 50 up 0.6%, regaining their composure, as IG market analyst, Joshua Mahony, characterised it.

On what was one of the most positive days on markets since the referendum, Mahoney said: “While today will not steal the headlines given the augmented rallies seen last week, today marks the first day since the referendum result that has truly seen risk appetite return. Not only have we seen sweeping stock market gains, but recent targets such as sterling has gained at the expense of havens such as gold and the Japanese yen.”

The return of this composure was always likely as markets begin to properly digest the news and start hearing from companies how the market is actually being affected. And, as with everything there are always both winners and losers – as was evident on Thursday by the trading updates from Associated British Foods, Rentokill, Marks & Spencer and Sports Direct.

The fall in sterling has already proved a boon to Rentokill and ABF. According to ABF’s trading update for the 40 weeks to 18 June, the firm said it had already benefited from a weaker sterling.

“Following the result of the EU referendum, sterling has weakened further and at these rates we expect a bigger translation benefit in the final quarter with no material transactional effect,” it said, adding: “As a result, our outlook for this financial year has improved and we no longer expect a decline in adjusted earnings per share for the group for the full year.”

Similarly, Rentokill said: “Sterling has weakened significantly since the announcement and, if recent rates were to prevail for the remainder of the year, the estimated favourable impact of currency movements on our profit for 2016 would be in the range of £25m to £30m.  This would be an increase of £10m to £15m on the guidance previously given at the time of our Preliminary results.”

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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