Say what? EU referendum week gets off to a stonking start as sterling and FTSE close higher - pushed up by banking and housebuilding shares

 
Emma Haslett
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Glastonbury Festival 2009 - Day 4
Party time? Sterling made its biggest gains in weeks ahead of Thursday's referendum (Source: Getty)

Investors may have been bracing themselves for a disastrous pre-referendum week - but things got off to a pretty good start today, with sterling hitting its highest since May, and banking shares bouncing back after a less-than-impressive performance last week.

The FTSE 100 closed three per cent per cent higher - soaring above 6,000 points to hit 6,204.

Meanwhile, the pound rose 2.3 per cent against the dollar to $1.4685, its highest since the end of May, and 1.9 per cent against the euro, to €1.2976, its highest since the beginning of this month.

Read more: Are bond markets a disaster waiting to happen?

And banking shares positively soared - with Royal Bank of Scotland (RBS) rising seven per cent to 237.7p, while Lloyds rose 7.6 per cent to 70p. Barclays was up 6.7 per cent at 176.8p, while HSBC rose by a more modest 1.4 per cent to 437.4p.

Housebuilders also shot higher, with Taylor Wimpey rising 6.8 per cent to 188p, while Barratt rose 6.8 per cent to 567.5p and Berkeley Group rose 5.9 per cent to 3,245p. Persimmon was up 5.9 per cent, at 2,056p.

The sunny outlook followed an impressive performance by Asian markets overnight, with the Nikkei finishing 2.3 per cent higher, while the MSCI index of Asia-Pacific shares outside Japan rose 1.3 per cent.

"A stellar session in Asia as fears of the UK leaving the EU abated somewhat alleviated some of the pressure on sterling and allowed investors to move away from the safe-haven assets and into a more risk-on appetite," said Mic Mills, head of client services at Capital Index.

"The three days of no campaigning as a mark of respect for the tragic murder of Jo Cox, has settled markets somewhat but campaigning begins again in earnest today, although it is to be hoped the rhetoric will be slightly less vitriolic."

However, analysts have suggested the party may be cut short as we approach Thursday's EU referendum. Last week the Vix index, dubbed the "fear index" because it measures global volatility, jumped to 34.4 points, just 2.6 points off its highest level in the last year. Meanwhile, yields on German 10-year bunds turned negative.

"Waves from the Brexit vote are buffeting the UK stock market, tossing it up and down as the opinion polls shift this way and that. Until the vote is over we can expect more price swings, as markets struggle to price in a unique event that carries with it such a high degree of uncertainty," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

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