Sterling soars to highest level since Brexit vote

Sterling on Friday rocketed to its highest level against the dollar since the UK's vote to leave the European Union.
Updated 12 January 2018
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Sterling soars to highest level since Brexit vote

LONDON: Sterling on Friday rocketed to its highest level against the dollar since the UK's vote to leave the European Union, after a report that the Netherlands and Spain were open to a deal for Britain to remain as close as possible to the trading bloc.
The pound traded up more than one percent on the day, pushing to as high as $1.37 and in the process hitting its highest level since June 24, 2016, when the pound plunged after Britain voted to quit the EU.
The gains came after Bloomberg reported that the Spanish and Dutch finance ministers had agreed to work together for a Brexit agreement that maintains close ties between the EU and Britain, in what would be a clear divergence in views among the 27 EU member states about how to treat Britain after it leaves.
Officials from the Spanish and Dutch finance ministries denied the report and said there was no new agreement between the countries on how Britain should leave the EU.
Sterling was already gaining on Friday before the report, helped by demand for euros and the continued weakness for the dollar, before spiking higher. The pound held on to most of those gains.
“I would suggest this [sterling’s jump] is purely because of news that the Dutch and Spanish are open to a softer Brexit,” Neil Jones, Mizuho’s head of hedge fund currency sales in London.
“It’s not so significant as the rally would suggest. Just because two of the 27 members say this, it doesn’t mean a softer Brexit will happen. I doubt it’s as straightforward as that,” he said.
After slumping in 2016, the pound last year had its best performance in a decade as Britain made some progress on negotiating its exit from the European Union and economic data came in better than expected.
Some traders expect Britain to secure a transition deal to leave the bloc soon, which could help lift sterling higher. Others said the pound would struggle to maintain Friday’s gains without more positive news.
Against the euro, which has rallied since minutes from the European Central Bank on Thursday pointed to tighter monetary policy in the euro zone, sterling was up 0.3 percent at 88.64 pence per euro.
The FTSE 100 briefly fell into negative territory and touched its session low before rebounding and closing higher.
Two-year gilt yields rose more than 5 basis points on the day to peak at 0.615 percent, their highest level since Jan. 4, 2016.
Five-year gilt yields rose more than 6 basis points on the day to 0.885 percent, matching the post-Brexit vote high of 0.885 percent set on Oct. 25.
Nomura currency strategist Jordan Rochester said the move higher for sterling was driven by a “big algo move,” referring to an algorithmic trade, while he also played down attaching too much importance to the Bloomberg report.
“I’m skeptical this (report) is necessarily a game-changer at this stage as there will also be member states pushing the other way,” he said. (Reporting by Jemima Kelly and Tommy Wilkes, additional reporting by Julien Ponthus and David Milliken, editing by Larry King)


Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 16 min 48 sec ago
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Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.