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London open: FTSE falls less than feared as Osborne cancels emergency budget
London shares were down on Monday but not as badly as feared as the repercussions from Britain’s referendum decision to split from the European Union continued to be debated, with George Osborne coming out of hiding to try and calm markets.
Just before 0900 BST the FTSE 100 was down 40 points or 0.65% at 6,098.65, while the more UK-focused 250 index was more than 300 points or 1.93% lower at 15,780.93.
The pound fell sharply in during the Asian session, but flattened off as the Chancellor gave a speech where he attempted to calm the markets, but was still down 1.9% versus the dollar at $1.3424 and down 1.4% on the euro at €1.2148.
Saying the Brexit result was “not the outcome that I wanted”, Osborne said the Treasury and Bank of England were “ready to deal with the consequences” and retracted his recent warnings of an emergency budget.
The Chancellor said he favoured delaying triggering Article 50 – to start the process of leaving the EU – until it’s clear what the terms would be in October when a new Prime Minister will have been chosen.
Market analyst Connor Campbell of SpreadEx commented: “It seems that George Osborne’s appearance this morning, his first since before the referendum results were announced, has somewhat calmed investors’ fears, the Chancellor joining many of his Tory colleagues in claiming there is no rush to trigger the dreaded Article 50 despite increasing pressure from Europe.”
Ipek Ozkardeskaya at London Capital Group noted that there had been dozens of broker downgrades in homebuilders, financials, travel and leisure stocks at the start of the week, which are expected to reinforce the selling pressures at the heart of the FTSE stocks.
“The FTSE 250 should continue underperforming the FTSE 100 as small, medium sized companies have a narrower manoeuvre margin in terms of replacing their European business partners by alternatives deals overseas,” she said. “Therefore, the Brexit should weigh heavier on small companies’ shoulders, as big business have certainly in place a solid plan B, in order to go beyond the borders to strengthen their non-EU relationships.”
In company news, EasyJet was leading the fallers, down more than 10% after it warned that profits were lower than expected in the third quarter and that the UK decision to leave the EU is likely to mean revenues in the second half of the year will be lower than last year, while costs will be £25m higher due to oil and currency movements.
Following the Brexit vote, the budget airline predicted “additional economic and consumer uncertainty is likely this summer and as a consequence it is expected that revenue per seat at constant currency in the second half will now be down by at least a mid-single digit percentage” compared to the second half of 2015.
Estate agent Foxtons was down almost 20% after it warned full-year revenue and adjusted earnings will be “significantly lower” than the previous year due to uncertainty caused by the referendum.
In a trading statement ahead of the company’s interim results on 29 July, it said the run-up to the EU referendum led to significant uncertainty across London residential markets and the decision to leave Europe is expected to prolong that uncertainty.
Aviva was down despite trumpeting that its capital position was resilient to market stress, adding that Brexit will have no significant operational impact on the company.
