Pound plunges, shares slide amid UK chaos
The pound plunged and Irish and British shares exposed to the UK slid as chaos swirled around the British government’s Brexit plans.
Sterling’s fall mirrored its slide in the immediate aftermath of the June 2016 referendum, as UK Prime Minister Theresa May lost her senior Brexit secretary Dominic Raab, other ministers, and faces a potential bid to topple her from ardent Brexiteer Jacob Rees-Mogg.
Financial markets too fright over growing fear her government is on the brink of collapse.
Sterling lost more than 1.5% against the dollar and the euro and traded at 88.7p.
Demand for options protecting against moves in sterling jumped to the highest in more than a year-and-a-half.
Shares exposed to the British economy, including a clutch of Irish shares such as the Bank of Ireland, Dalata, as well as Irish and UK homebuilders, were hit on fears that Britain crashing out of the EU with no deal will damage the UK economy.
“As the day’s progressed there are increasing concerns that not only the Brexit deal could be off but also that Theresa May could have run out of lives,” said Fiona Cincotta, senior market analyst at City Index.
“The exchanges in the Commons make it difficult to see how Theresa May’s plan can make it through parliament or even survive.”
Bank of Ireland, which has a significant lending operation through the British post office, plunged almost 8%, AIB shed 3.5%, while Dalata Hotel Group lost almost 4%.
UK housebuilders Bovis, Persimmon, Taylor Wimpey, and Barratt Developments were down 7%, 7.3%, 7.5%, and over 6%, respectively.
The Royal Bank of Scotland was also hit hard as investors priced in the chances of a general election. RBS shares ended almost 10% lower.
“With the Labour Party pledging in its manifesto to break up the bank, investors aren’t willing to take the chance.
Other banks such as Barclays and Lloyds were also heavily lower on the Brexit fallout,” said Ms Cincotta.
Joshua Mahony, market analyst at IG, said sterling’s surge earlier in the week “in the wake of cabinet approval for the draft withdrawal agreement already feels a long time ago.
That optimism unravelled as traders faced up to the prospect of huge political turmoil ahead.
Mr Mahony continued: “If the prime minister falls, there’s a chance that any new leader would be either a hardline Brexiteer or Jeremy Corbyn… it is clear that markets see a very uncertain future for the UK.”
Capital Economics said: “Clearly, investors have focused more on the possibility of no deal, given the fall in sterling. And there are significant political and procedural hurdles standing in the way of another referendum.
“That said, there is still a sense that all bets could be off if today’s cabinet resignations and rumours of a challenge to Ms May’s leadership spell the end of her deal and her time in Number 10,” it said yesterday.
Tony Syme, from the University of Salford Business School, said the “resignation by Dominic Raab is the second by a Brexit secretary”.
“That [Britain’s] own negotiator cannot even support the Brexit deal that he negotiated is sending out a very clear message that no deal is a very real possibility next March,” said Mr Syme.
