Pound bounces off lows as Cameron heads for Brussels summit FT Reporters

©Bloomberg
David Cameron leaving Downing Street on Monday

Sterling bounced off its lowest point in more than three decades in Asian morning trading on Tuesday, erasing some of the losses driven by Britain’s decision to leave the EU.

Futures markets are also signalling a more upbeat start to trading when the UK and US markets open. FTSE 100 futures were trading 1.1 per cent higher ahead of European market opening hours and S&P 500 futures were up 0.8 per cent.

The financial fallout from Brexit has battered global shares and the pound as investors took fright at the prospect of weaker global growth and an extended period of ultra-low interest rates.

Underlining the angst — and Britain’s new standing — Standard & Poor’s stripped Britain of its triple A sovereign rating, the country’s last remaining top score from a major agency, citing the economic, fiscal and constitutional risks of last week’s Brexit vote.

It cut the rating by rating by two notches from AAA to AA - a bigger than even seen in the financial crisis. Fitch also cut its rating on the UK on Monday, from AA+ to AA

While the fallout and ramifications continued to ripple out on Tuesday — with economists revising down their forecasts for economic growth in countries as far afield as Hong Kong and Singapore — investors’ nerves appeared a little steadier.

Sterling rose as much as 0.8 per cent in Asia to $1.3336 amid a broad turnround in currency markets, slightly paring that back later to a gain of 0.6 per cent. Stock markets across the Asia-Pacific region were trimming declines while traditional haven assets, including gold and the Japanese yen, weakened.

David Cameron heads for a final, painful visit to a Brussels summit as UK prime minister, where he will urge European leaders to learn the lessons of Britain’s referendum and give his analysis of the Brexit vote at a summit dinner.

European leaders are keen to push ahead with formal negotiations and Downing Street expects Mr Cameron’s successor will come under heavy pressure the moment they take office.

With populist and anti-EU sentiment rising across Europe, he is also expected to warn that many British voters felt alienated by a remote elite in Brussels pursuing an apparently relentless project of integration.

On Wednesday, Mr Cameron will be asked to leave the summit while the remaining 27 members hold informal talks on how to approach Brexit negotiations and how to stop them stretching out over many years.

Meanwhile, the continued unravelling of the opposition Labour party has so far failed to dislodge Jeremy Corbyn as leader, despite the resignations of 46 members of his front bench and an expected vote of no-confidence from the vast majority of his MPs.

Mr Corbyn is facing the biggest rebellion against a party leader in modern UK history, brutal in its scale and determination, yet he has refused to budge. Propped up by a hard core of loyal MPs and by the unions, he said on Monday that he would not leave until he was defeated in a leadership contest.

Monday was also a brutal day for investors. London’s FTSE 250, a gauge of the domestic economy, fell 7 per cent, while the more global and diversified blue-chip FTSE 100 index lost 2.6 per cent. The FTSE 250 has fallen 14 per cent over two days, it’s worst losing streak since the crash of 1987.

Sharply lower government bond yields, led by the UK 10-year Gilt falling below 1 per cent for the first time, spurred the selling of financials, with banks and insurers seen being squeezed by a future of ever-lower interest rates. On Tuesday morning in Asia, Japanese government bond yields sank deeper into negative territory with the benchmark 10-year dipping to minus 0.22 per cent.

Jonathan Stubbs, UK & European equity strategist for Citigroup, said the stock market upheaval reflected the challenge of anticipating a fluid political situation involving so many actors in different countries, at a time when many investors were already nursing losses.

“You have a lot of confusion, a very low level of confidence, and a lack of conviction,” he said