The FTSE 100 ended higher on Friday as campaigning on the European Union referendum was suspended until Saturday following the death of a British MP. Labour MP Jo Cox was shot and stabbed in her constituency town of Birstall near Leeds, allegedly by local resident Tommy Mair, who is reported to have shouted “Britain First” as he attacked her. There was a sense among market participants on Friday that the incident could sway public opinion back towards a Remain vote.
Morgan Stanley said the probability of a vote to Remain in next Thursday’s EU referendum stands at 55%, based on the expectation of a late swing in the polls. In this event, which is the bank’s base case, it expects to see a stock rally that could push the FTSE 100 up 14% from its current level.
London stocks edged up on Friday as finance stocks recovered and oil prices bounced back from declines throughout most of the week. Of course as those pre-referendum fears really ramp up next week that could change, but for now the FTSE appears to be settling into that 100 point range.
London stocks fell on Thursday as the Bank of England kept policy unchanged and warned that a possible Brexit may hurt the economy. The BoE Monetary Policy Committee voted unanimously to leave bank rates unchanged at 0.50% and its asset purchase target at £375bn, as widely expected.
On its assumption that the UK will vote to remain in the EU on 23 June, which increasingly appears to be less secure given recent poll results, the MPC’s core view is that the next move for interest rates will be upward.
Ahead of the referendum, the MPC minutes noted an ever wider range of financial assets were being jostled by worries about a potential Leave vote and that increased uncertainty has led to increased delays in major corporate decisions regarding business investment, commercial real estate transactions and M&A activity.
“On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling’s exchange rate would fall further, perhaps sharply,” read a statement summing up the minutes of the MPC’s meeting.
In the eurozone, European Central Bank Benoit Coeure said the bloc was at risk of suffering a “lost generation” because of high youth unemployment as he criticised European countries for poor implementation of reform recommendations.
In the US, Federal Reserve St. Louis president Jim Bullard said just one interest rate hike is needed through 2018 due to stagnant economic growth.
On the economic data front, US housing starts fell a little less than expected in May, according to data from the Commerce Department. Housing starts slipped 0.3% to a seasonally-adjusted annual rate of 1.16m versus expectations of a decline to 1.15m.
Meanwhile, oil prices recovered, with Brent crude up 2.5% to $48.44 per barrel and West Texas Intermediate up 2.4% to $47.38 per barrel at 1641 BST.