Sterling slumped as uncertainty stalked markets in Brexit-dominated 2016 Sterling was hammered to 31-year lows as financial…
Sterling plumbed depths not seen for more than three decades
Sterling was hammered to 31-year lows as financial markets endured an onslaught of uncertainty in 2016, driven by Britain’s vote to leave the European Union.
The UK’s then-chancellor George Osborne signalled at the beginning of 2016 that markets were in for a rough ride amid slowing growth in China.
Such was his concern about the growing gloom that in January he slammed the brakes on the sale of the Government’s final stake in Lloyds Banking Group, vowing to wait until markets had “calmed down”.
But while global turbulence remained a key factor in the market swings of 2016, the lion’s share of the jitters came from tectonic shifts in Britain’s political landscape.
Brexit fears dogged the London top-share index in the run-up to the June 23 EU referendum vote, causing the market to crash below the 6,000 mark on June 14 for the first time in four months.
But the polls were unable to settle on a clear sense of direction for the vote, causing the FTSE 100 Index to swing back to a two-month high on the eve of the Brexit result after the final poll of the EU referendum campaign revealed a marginal lead for the Remain camp.
It would set the market up for a sharp correction on June 24.
Britain’s vote to leave the European Union unleashed a tsunami of political uncertainty intensified by Prime Minister David Cameron’s decision to resign from office.
More than £100 billion was wiped off the value of Britain’s blue-chip companies until the Bank of England vowed to support the markets with a £250 billion injection.
The FTSE 100 Index eventually closed down 199.41 points to 6138.69 on June 24, recovering from a 7% plunge earlier in the session.
Aviation and housebuilding stocks bore the brunt of the post-vote slump, with Taylor Wimpey dropping 29% on fears of a Brexit blow to the housing market, while British Airways owner IAG slid 22% after issuing a profit warning in the immediate aftermath of the referendum outcome.
Despite recording steep falls, these still failed to match up to the descent of the British pound.
Sterling plumbed depths not seen for more than three decades. In the early hours of Friday morning it fell from 1.50 against the US dollar to around 1.37 by the time the London session closed.
More pain was to come the pound’s way in months ahead as traders baulked at political talk of a “hard Brexit”, where Britain would leave the European Union single market and fall back on World Trade Organisation rules in order to take a tighter grip of immigration.
The misery for the UK currency came to a head on October 7 when a “flash crash” – thought to have been triggered by a rogue algorithm reacting to tough Brexit comments made by French president Francois Hollande – sent the pound tumbling to fresh 31-year lows versus the greenback at 1.18 dollars.
It also made for grim reading against the euro, sliding 1.8% to a five-year low of 1.113.
But while sterling nursed hefty losses, the FTSE 100 Index scaled new heights in what would become a dominant theme for the UK financial markets in 2016.
Sterling’s post-referendum slump proved a boon for multinational companies listed on the FTSE 100, as many tend to benefit from earnings in currencies that are stronger than the pound.
It helped London’s top flight soar to a new mid-session record of 7,129.83 on October 11, before closing just 33 points shy of an all-time closing high of 7103.98.
This bright point would be superseded by more market ructions a month later when Republican Donald Trump confounded the sceptics to post a shock victory in the US presidential election.
In a similar vein to Brexit, markets were forced to administer sharp corrections after pricing in the opposite outcome – a triumph for Democratic candidate Hillary Clinton.
It saw the FTSE 100 Index close up 1% at 6,911.84 on November 9 after losing more than 140 points at the start of the session.
However, the so-called Trump slump quickly transformed into a Trump bump across the Atlantic, with the Dow Jones Industrial Average hitting a record high on November 11 as investors warmed to the billionaire property tycoon’s economic policies.
Oil traders also saw in the tail end of 2016 with a flourish, as Opec’s will-they-won’t-they deal over a production cut was finally driven home, causing Brent crude prices to soar to 51.21 US dollars a barrel.
Despite last-minute infighting between members threatening to scupper months of negotiations, the cartel agreed its first cut since 2008, reducing production by around 1.2 million barrels a day to a total production of 32.5 million barrels a day from the start of next year.
The price of oil stepped up again to 56.80 US dollars a barrel on December 12 after non-Opec countries also agreed to slash production levels.