Sterling steadies as Tories avoid fractious contest

A week after the UK began voting to leave the EU, global markets are still being dominated by the consequences.

There are signs the tension is easing: Sterling held steady after former London mayor Boris Johnson said he won’t run to succeed David Cameron as UK Conservative Party leader, offering the chance of a smoother transition of power.

European stocks were little changed, having recovered about half their losses since Britain’s EU referendum, while emerging-market equities advanced.

And the sterling corporate bond market reopened, with the first offerings since the UK voted to leave the EU. At 82.7p, sterling was also little changed against the euro, but remains about 6.5% lower than before the vote.

That means that the many Irish firms selling goods and services across the Irish Sea will have have a tougher time making profits.

Irish bank stocks, which suffered a further huge hit by the Brexit decision, remain under pressure, however. Bank of Ireland shares gained 1 cent to 19c, but are down from 27c since voting day.

Permanent TSB rose almost 4% to 166c, but is down from 218c in the past week. Davy Stockbrokers said the Brexit uncertainty will lead to a new delay in PTSB selling off a UK loanbook.

The Central Bank of Ireland said mortgage loans fell 2.2% in the year to May. Lending to companies fell 6.3%, though medium-term lending to firms increased almost 16%.

Central bank pledges of support have helped to contain the fallout from the Brexit decision allowing global equities to recoup more than half of the €3.6tn of market value wiped out over Friday and Monday.

However, gains have been limited as political upheaval in the UK prevented the country from entering talks to determine its future relationship with the EU. It’s also the last day of trading for the second quarter, further complicating the immediate outlook for markets.

“Now we’re in the stage where we don’t know where to go forward,” said Peter Dixon, global equities economist at Commerzbank in London.

“We’ve walked into a huge right hook which nobody saw coming and businesses haven’t had enough time to plan for a Brexit. Now the clock starts ticking and only when companies start saying exactly what their plans are will investors be able to price Brexit properly,” he said.

“Johnson’s announcement removed one layer of uncertainty from a very difficult political situation,” said Jane Foley, a senior currency strategist at Rabobank International in London.

“That makes it more likely that Theresa May will get the support. It suggested that rather than having a political battle, it will be a much smoother transition to new leadership. That is pound positive.”

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