BREXIT

Brexit 'Disaster' Propels British Stocks To Record Highs

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FTSE100 kilimas tiesiogiai susijęs su eksportu, kuris kils dėl drastiškai krituosios GBP vertės:

GBP/EUR

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THE INSIGHT

 

Sterling’s Brexit-induced plunge will bring about the best of times and the worst of times for the U.K. economy. The pound tumbled to a new 31-year low against the dollar on Tuesday morning on the “hard Brexit” vibes coming from the Conservative Party conference in Birmingham. It’s a trend that is likely to continue as Theresa May and her government keep media and markets focused on immigration and sovereignty rather than maintaining Britain’s access to the single market.

 

A falling currency is not all bad news for the British economy, at least not in the short-term. Just ask investors in the FTSE 100 index.

 

London’s flagship index promptly soared above 7,000 for the first time since 2015 on hopes that a weaker sterling would boost exports of its many multinational companies. Kathleen Brooks, research director at FOREX.com and City Index, has studied the relationship and concluded that it’s a see-saw: when sterling falls, blue-chip stocks go up. “While the pound remains weak, we would expect this relationship to continue,” she said in a note to clients on Tuesday morning.

 

Manufacturing businesses are also smiling. Since a large part of Britain’s industrial production is shipped overseas, a weak sterling lures buyers through lower prices in their domestic currencies. It is no coincidence that the latest gauge of the sector’s health — the purchasing manager index for September — notched its highest level since June 2014.

 

But a devalued sterling won’t be enough to cushion the blow of a “hard Brexit” on the entirety of the U.K. economy. For a start, consumers will suffer as import prices will be higher, with anything from Chinese-made toys to dollar-priced iPhones feeling a lot more expensive due to the feeble pound. The Bank of England, which is doing its part to weaken the pound by keeping rates low, will also start to worry if higher-priced imports begin to stoke inflation. One scenario the BoE wants to avoid at all costs is “stagflation:” the paralyzing coupling of a slowing economy with rising inflation.

 

On the markets’ front, FTSE 100 companies may be enjoying the lower pound but more domestically-minded companies aren’t joining the party. The FTSE 250, which is largely comprised of U.K.-focused businesses, has lagged the FTSE 100’s growth by nearly 50 percent since the June 23 referendum.

 

And finally, there is an inescapable political irony: the mantra of the prime minister and many Brexiteers is to snatch the country’s sovereignty away from the clutches of the EU. And yet, one of the most powerful financial symbols of that sovereignty, the currency, is being weakened by the very same actions.

 

- POLITICO