Pound bounces back after exit poll slide
STERLING rebounded from its early morning lows yesterday after Theresa May vowed to carry on as Prime Minister.
The pound fell sharply overnight, slumping 2.5 per cent against the dollar to as low as $1.2635 after it became clear Britain was facing a hung parliament.
It also fell 2.3 per cent against the euro to €1.1289 in the biggest rout since the aftermath of the Brexit referendum last June. But it started rising again at around 8am on reports that Mrs May would not resign and instead lead a minority government. The pound rose towards $1.28 and back above €1.14 as investors came to terms with the shock election result.
Michael Metcalfe, of investment company State Street Global Markets, said sterling was likely to remain under pressure. But star fund manager Neil Woodford said the Government could ease austerity by borrowing and spending more, boosting the economy.
As the pound fell, boosting companies which earn profits in foreign currencies, the FTSE 100 index of leading shares rose 77.35 to 7527.33.
ONE of the great verities, heard many times in the past 24 hours, is that financial markets hate uncertainty. And they have it in spades with Theresa May’s minority government and Jeremy Corbyn snapping at her heels.
Yet in spite of the election shock and a heavy dose of uncertainty, there was no collapse in the FTSE 100 or European shares. The bull market just keeps on running.
Indeed, it has been the same on the other side of the Atlantic, where the political forces arrayed against Donald Trump have done absolutely nothing to weaken the S&P500.
Partly this is about momentum. It usually takes a war in the Middle East or an economic spat between great powers – such as the row between Germany and the US over interest rates – to precipitate a collapse on the scale of the Wall Street crash in October 1987.
So why are equity markets so impervious to current shocks?
It is mainly about the behaviour of central banks. Since the 2008 Lehman Brothers implosion, the Federal Reserve, the Bank of England, the Bank of Japan and, more recently, the European Central Bank have done all in their power to keep money easy.
At a time when deposit and savings rates are so hopelessly low, huge volumes of money have flowed into shares in search of capital gains and dividends.
As time has moved on, monetary and confidence factors have been supported by fundamentals as corporations on both sides of the Atlantic have produced solid earnings growth.
One of the great stalwarts of the FTSE 100, BP, has just been upgraded by credit rating agency Moody’s for the first time in 19 years.
In this Pollyanna world, even Mrs May’s momentous error did not manage to move the dial by very much.
Santander ambition
ANA Botin is used to handling crises. Her rise to the top job at Santander after the sudden loss of her father is a case in point.
She also played a key role in reshaping the detritus of Britain’s former building societies, strengthening the balance sheet of Santander and turning it into a coherent presence on our nation’s high streets.
But there will be serious questions as to whether it was sensible to take responsibility for Spain’s Banco Popular at this juncture. Admittedly, Botin is fortunate in having the backing of European banking regulators who wiped out shareholders and second-tier bondholders before selling the bank to Santander for one euro.
As a testbed for Europe’s post-crisis banking resolution regime, she must know Frankfurt and Brussels have a great deal riding on her success, although there will be limits to German patience, as Athens would testify.
No one, including former Abbey National members/shareholders with Santander stock, can look on this with equanimity. The initial Madrid market reaction to mark Santander shares up strongly may well be wrong. There was the same upbeat view when Lloyds took on HBOS, winning large market shares but condemning the merged bank to nearly a decade of repair work.
The idea of taking on a portfolio of €37bn (£32bn) of toxic property loans, without knowing exactly what is under the bonnet, is a daunting prospect.
The worry must be that Santander will be overstretched. Santander Consumer USA is already heavily exposed to America’s car finance market. It has imposed restrictions on borrowers who want to pay with credit cards, but must also deal with a rising number of people who miss payments.
The car market is clearly very different to sub-prime mortgages, but one is reminded of how HSBC tripped up appallingly when it went into consumer lending in the US through Household International.
Santander has also come under scrutiny in Puerto Rico for its role as an underwriter of infrastructure projects that left the country burdened with heavy debts.
One of the lessons of the banking crisis is that simpler can be better. This has been the approach of Antonio Horta-Osorio, a former Santander banker, at Lloyds.
One admires Botin’s bravery but she must beware of the riptides.
Stamping out
AS SOMEONE who has collected British stamps since I was a boy, the Stanley Gibbons philately shop on the Strand in central London is a temple.
So the thought of it being gobbled up by private equity firm Disruptive Capital Finance is disturbing. My advice to wouldbe predator Edi Truell? Be kind.