The UK stock market ended a choppy week on a stronger note, rebounding from a four-month low as traders nervously shuffled their positions in the final days before the EU referendum.
Risk aversion continued to pervade UK and global markets over the week, with figures showing more than $1bn (£700m) was pulled out of UK equity funds, the second biggest outflow over the past decade.
Trading has been marked by investors seeking out safer assets such as gold and government bonds and dumping riskier shares.
But with campaigning for the EU referendum suspended after the death of MP Jo Cox, investors were in a calmer mood on Friday. The FTSE 100 index of leading shares closed up 1.2% on the day at 6021.09. Earlier in the week, the index had dipped below the 6,000 mark for the first time since February. But Friday’s rebound meant it was down just 1.5% over the week.
Banking stocks were among the top risers on the London market, Lloyds shares were up 6% and Barclays rose more than 4% as worries about the referendum resulting in a vote to leave receded slightly. Housebuilders, another group considered particularly vulnerable in the event of Brexit, also rallied on Friday.
“The fears surrounding a Brexit have abated somewhat today,” said Joshua Mahony, market analyst at online trading company IG. He said a pickup in oil prices also helped the FTSE, with Brent crude up 3.2% $48.71 a barrel at the time of the London stock market close.
“The incessant rise in crude prices today has provided enough emphasis to keep the main UK benchmark afloat,” added Mahony. But market players said the mood was still tense due to the backdrop of tight opinion polls on Thursday’s referendum.
This week, $1.1bn poured out of UK equity funds, while European equity funds also experienced big outflows as investors sought out safer assets, according to figures from Bank of America Merrill Lynch Global Research.
Its strategists summed up the market mood in a research note: “June thus far has been all about the risk-off Brexit trade, ie long gold, US bonds, yen and short oil, UK/EU equities, British pound.”
The pound had another choppy week as the Bank of England said UK currency could fall sharply in the event of Brexit. That prediction and a lead for leave in the opinion polls helped push sterling to a 10-week low of $1.4013 on Thursday. But it recovered on Friday to $1.4313.
Martin Beck, of the Oxford Economics consultancy, highlighted the correlation between the pound and opinion polls.
He said: “Recent movements in sterling have closely tracked shifts in opinion polls on the EU referendum. A rise in support for leave over the last week saw sterling drop by just over 1% on a trade-weighted basis,” he said, referring to sterling when measured against a basket of other major currencies.
In a sign of nervousness about what is expected to be a tight vote, the cost of hedging against wild swings in the pound over the next week hit a record high on Friday.
