Broad Rally in Europe, Sterling Drops on Brexit Worries

Lucy Stoeva
22 Feb, 2016
New York City

A surge in resource prices and the market rebound in Asia powered the stock rally in Europe. The U.K. pound dropped nearly 2% on the concerns that the U.K. may leave the European Union. HSBC reported a surprise pre-tax loss of. Vivendi increased its share in Telecom Italia to 22.8%.

[R]4:00 PM Frankfurt, Germany – A surge in resource prices and the market rebound in Asia powered the stock rally in Europe. The U.K. pound dropped nearly 2% on the concerns that the U.K. may leave the European Union. HSBC reported a surprise pre-tax loss of. Vivendi increased its share in Telecom Italia to 22.8%.[/R]

A surge in oil and metal prices and the market rebound in Asia, resulted in a broad market rally in Europe, as investors shrugged off data about slowing economic activity in the euro zone and China.

Asia set the positive tone for the day after the SSE Composite Index rose 2.4% in Shanghai and Nikkei 225 added 0.9% in Tokyo.

Oil prices rallied after Baker Hughes on Friday reported the ninth consecutive week of U.S. rig decline, thus alleviating concerns about the U.S. oversupply.

Brent crude oil futures rose 5.1% to $34.68, while West Texas Intermediate crude oil jumped 7.05% to $31.73.

European energy companies benefited the trend and Seadrill advanced 5.3%, BP rose 3.9%, Royal Dutch Shell gained 3.8%, and Total SA added 2.6%.

Shares of heavyweight mining companies received a boost from the surge in iron and copper prices after growth in China''s steel industry improved the outlook for global metal demand.

Anglo American jumped 10.7%, Rio Tinto surged 8.4%, and BHP Billiton, expected to report earnings later today, soared 8.5%.

In the U.K, the pound sharply dropped by 1.9% to $1.42, the largest daily decline in six years, after Boris Johnson, the Mayor of London, said he would potentially back the “Brexit”, or the exit of the U.K. from the European Union, on the referendum in July.

Investors chose to ignore the latest Markit reading on euro zone manufacturing, which signaled sluggish economic growth. The flash Purchasing Managers Index for the euro zone fell to 52.7, the lowest since January 2015, compared with 53.6 in the previous month.

In China, the February MNI business indicator declined to 49.9, and in Japan, the flash February manufacturing reading tumbled to 50.2, well below the expected 52.0 reading.

Nevertheless, all major markets traded significantly higher on Monday.

In London, FTSE 100 index climbed 90.16, or 1.52%, to 6,040.39.

In Frankfurt, the DAX index advanced 165.24, or 1.76%, to 9,553.29, while in Paris, the CAC 40 index soared 68.10, or 1.61%, to 4,291.14.

HSBC Holdings Plc inched down 0.4% to 448 pence after the largest bank in Europe surprised investors with a pre-tax loss of $858 million and warned of a difficult environment in 2016.

The company recorded net loss of $1.1 billion for the fourth quarter, compared to a net profit of $765 million a year ago, partially due to higher loan impairment charges and slower top-line growth.

Loan impairment charges and other provisions surged 32% to $1.6 billion from the previous year.

Total revenue dropped 11% to $12.9 billion from the same period a year ago, reflecting lower net interest and net fee income, partially offset by an increase in net trading revenue.

For the full-year 2015, net income increased 2.6% in 2015 to $15.1 billion.