One week of markets in one minute: Rally continues as FTSE 250 closes on pre-Brexit levels

A dip on Friday was not enough to dent the FTSE 250’s progress this week, while the FTSE 100 surged through the 6,700 mark, as the near certainty of further central bank intervention continued to support equity markets.

In a world where bad news is actually good for markets because it implies further stimulus measures, there was plenty of negatives for investors to rejoice on the data front, not least an appalling services sector purchasing managers index number on Friday. The worst reading for the sector since 2009, it came in at 47.4 for July, down from 52.3 for the June survey. Any reading below 50 represents a contraction.

Despite managing to confound what were already gloomy forecasts from analysts, the FTSE 100 rose in reaction, and indeed over the week it added a further 1%, closing at 6,730.5 points.

The FTSE 250 had a better week, adding nearer 2% after closing at 16,983.5 points. Only today’s fall, which saw it dip 0.4%, stopped the index finishing the week back above 17,000 for the first time since the Brexit result.

Among the blue chips it was the turn of the core defensive names, which report a large part of their earnings in dollars, to lead the index higher. Both the pharmaceutical giants AstraZeneca and GlaxoSmithKline finished the week stronger, alongside HSBC which made similar progress.

Stephen Jones, chief investment officer at Kames Capital, said this trend could be here for a while yet. “Their income has gone up as a result of the pound’s depreciation, and there is a strong investment case for portfolios to be exposed to FTSE 100 names which are going to do well out of low, but gently positive growth globally, and the translation and repatriation of those earnings back into a UK base through a depreciated currency.”

Can the rally be sustained? According to Mark Dampier, research director at Hargreaves Lansdown, it certainly can. “A lot of people have been caught out by Brexit having expected the market to fall back further than it did, and as a result there is a lot of cash waiting on the sidelines.

“It means dips will be bought very quickly, and with nowhere else to put your money to make any kind of return, combined with investors still hungry for yield, we expect the market to go up further in the near term.”

In line with the biggest UK companies, overseas giants also continued to see gains this week. The S&P 500 was on course to close up marginally on the week by Friday, trading at 2,171 points shortly after London closed, the index having already set yet another record high on Wednesday.

In Japan markets moved more sharply, but ultimately made similar progress to the UK, with the Nikkei 225 climbing from 16,497 points last Friday to 16,627 points by the end of this morning’s trading session. Whether this is a pause for breath after the 9% gain the previous week or something different will become clear in the coming weeks.

Elsewhere, gold continued to see minor selling, moving from $1,326 to $1,320 week-on-week, while the pound once more bore the brunt of investors’ fears over the health of the UK economy, falling to $1.31 by close of play Friday. Whether the latest data continues to force sterling back towards post-Brexit lows remains to be seen, but at the very least this lower trading range seems set to remain for some time.

The Brexitometer

In the wake of the crisis, and in order to provide a quick and easy snapshot of the real impact of Brexit on markets, we will be updating the Brexitometer weekly, detailing the impact of the EU referendum result on UK markets.

FTSE 100: UP 6.2%

6,338 points at close on 23 June.

6,730.5 points at close on 22 July.

FTSE 250: DOWN 2%

17,334 points at close on 23 June.

16,983.5 points at close on 22 July.

FTSE All Share: UP 4.7%

3,481 points at close on 23 June.

3,643.8 points at close on 22 July.