World stock markets rebounded yesterday, after heavy losses in recent sessions caused largely by the prospect of Britain voting to leave the European Union, as attention turned to the Fed.
While the Federal Reserve looks set to postpone hiking US interest rates, the meeting will offer a fresh assessment of whether the US economy remains solid.
“Markets have taken a bit of a Brexit breather”, said analyst Jasper Lawler at CMC Markets, with a poll tipping Britain to vote on June 23 to stay in the European Union helping improve sentiment.
But Lawler said the modest rebound from a sharp sell-off at the start of the week “is more a function of short-covering ahead of the Federal Reserve meeting than any sudden desire to take risk.”
London’s benchmark FTSE 100 index closed 0.7% higher, while in the eurozone Frankfurt’s DAX 30 gained 0.9% and the Paris CAC 40 won 1.0%.
Asian stocks also rebounded yesterday after a global sell-off that saw London slump 2.0% on Tuesday on Brexit fears, while Wall Street edged higher before the end of the Federal Reserve’s meeting.
“After a torrid few days for markets, European investors are bargain hunting, having concluded the market is oversold,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
“Although this may prove to be a very astute move, with volatility and the possibility of negative news still high and the EU referendum genuinely too close to call, the upside potential for...
stocks is likely to remain limited until the result is known.”
Ahead of the June 23 referendum, investors are keeping a close watch also on central bank meetings this week in the United States and Japan.
In foreign exchange yesterday, the pound fought back to rise against the dollar and euro.
“The pound is in recovery mode yesterday ahead of this evening’s Fed meeting,” said City Index research director Kathleen Brooks.
“This is likely just a pause after another bruising day for risk assets on Tuesday.
The yield on German 10-year government debt, after falling into negative territory for the first time yesterday, has climbed back above 0%.
However sentiment remains fragile,” she added in a note to clients.
Investors from the Americas to Asia have been piling into safe haven investments such as the yen, gold and bonds over the past week as a succession of opinion polls put Britain’s “Leave” camp in front ahead of the EU referendum.
However the latest poll, by ComRes, showed support for remaining at 46% and the pro-Brexit side on 45%.
This contrasts with a result from the same pollster just one month earlier in which the pro-remain side had an 11 point lead.
The prospect of one of the biggest economies leaving the bloc has led to warnings of a bloodbath on global trading floors, just as dealers struggle to recover from a China-fuelled rout that wiped out trillions of dollars at the start of the year.
Worries about the impact of an exit sent the yield of rock-solid 10-year German debt into negative territory on Tuesday, for the first time in history as dealers fled to safe investments.
In London, the FTSE 100 up 0.7% at 5,966.80 points; Frankfurt - DAX 30 up 0.9% at 9,606.71 points and Paris - CAC 40 up 1.0% at 4,171.58 points at the close yesterday.