Monday, 22 February: Any plans David Cameron had for the weekend, alongside his cabinet members, were sharply cancelled as for the first time in 30 years, a cabinet meeting was held on a Saturday morning to discuss the upcoming UK referendum. Late on Friday evening, Cameron stepped away from meeting his European fellows to announce a deal had been met for the UK to remain within the 28-member organisation. On Saturday, Cameron addressed the media from Downing Street, announcing the he had secured a good deal with Brussels, giving the UK a special status. He also added that leaving the EU would “threaten our economic and national security”. The majority of cabinet leaders have backed the PM’s deal with Brussels, but soon after the announcement, some members began to declare that they will fight to leave the EU. Boris Johnson, the Mayor of London and one of Britain’s’ most charismatic politicians, joined the six cabinet members in declaring his support for a British exit.
So what has this done to markets? Well in equities, the FTSE 100 has rallied during Monday morning trading, gaining more than 1% by midday trading. In other equity news, HSBC have been the biggest fallers on the index, trading lower by more than 3% in the first hour of trading after announcing a fourth-quarter loss, with profit before tax well below analyst’s estimates. The global bank also confirmed that they are to be investigated over hiring practices in Asia. At the same time, the bank’s Chairman warned that China’s slower economic growth will contribute to a bumpier financial environment. The bank pared back some of their losses to end the day lower by 1%.
The initial reaction in forex markets was good, based on Cameron sealing an EU deal. However the news that Johnson has decided not to support staying in the EU has weighed heavily on the British pound as the currency took heavy beatings early on European trading. The pound fell against both the Euro and the US Dollar. Pressure was especially felt in the pound dollar exchange where the pound has hit a seven-year dollar low and fell by more than 2% in Monday trading to $1.405. Uncertainty over the currency looks set to continue in the lead up to the June 23rd referendum.
Elsewhere, Brent oil prices surged on optimism and expectation of an accelerated decline in US oil production. Oil prices have been declining since 2014, largely in part to a major oversupply of the commodity. Since then, output, as such, hasn’t declined as many would expect. However, US output could start to subside this year, with the International Energy Agency (IEA) saying they expect US shale-oil production to fall by 600,000 barrels a day in 2016, and another 200,000 barrels a day in 2017. Brent oil traded over 5% higher today, reaching close to $35 a barrel. At the close of European trading, the commodity was trading at $34.66 pbl. Unsurprisingly, miners lead the blue-chip index with Glencore and Anglo American leading with double digit increases. They ended the day with gains of +11.4% and +10.8% respectively.
At the close European indices were up with the FTSE 100 +1.5%, the CAC 40 +1.8%, and the DAX +2%. In the US, the Dow Jones and the S&P 500 are both trading higher by 1.2%, at the time of writing.