European stocks rebound after two days of heavy losses

European stocks edged higher on Tuesday after two days of heavy losses amid continued volatility on global markets as a result of the U.K. vote to leave the European Union (EU).

The pan-European STOXX 600 was up 2.5 percent.

London FTSE index was up 2.18 percent while the FTSE 250 – which is mainly made of domestic-focused stocks – rallied 3.2 percent.

Markets appear to becautiously optimistic despite sharp losses on Monday as investors digested the full implications of the U.K.’s vote to leave the EU.

European stocks tumbled by Monday’s close with all European sectors posting solid losses, with banks, travel and financial services all closing off 7.5 percent or more. Meanwhile, sterling hit a 31-year low while U.S. stocks closed about 1.5 percent lower or more Monday.

Britain’s decision to leave the EU has prompted widespread fear that global growth could come under significant pressure, while the actual timeframe of the U.K. departure from the EU remains unclear.

Standard & Poor’s announced Monday that it had lowered the United Kingdom’s sovereign credit rating from “AAA” to “AA,” citing last week’s referendum. Meanwhile, Fitch lowered its rating from AA+ to AA with a negative outlook.

U.K. finance minister George Osborne ruled himself out of the running to succeed Conservative Prime Minister David Cameron (who resigned following the Brexit vote) on Monday, citing his fierce advocacy of staying in the EU, Reuters reported. Elsewhere, European Central Bank President Mario Draghi expressed “sadness” on Monday at Britain’s vote to leave the EU.

A European summit is being held in Brussels on Tuesday which Cameron is attending. Pressure is expected to be applied to the U.K. to trigger Article 50 which sets in motion the process of withdrawing from the EU.

Banks rebound

Banking stocks, which have been beaten up in the last two trading days, bounced back with the sector outperforming the broader STOXX 600, despite continued concerns over the impact of Brexit.

Italian lenders were sharply higher after a number of reports suggested that the Italian government is preparing to take action to protect the country’s banks which are burdened by billions of euros worth of bad loans. Shares in Unicredit – which is on the hunt for a new chief executive – were in the black despite RBC cutting its price target for the stock.

Banca Monte dei Paschi di Siena was cut to “underweight” by Barclays, but was still trading higher.

Shares in UBS rallied despite a price target cut from both HSBC and RBS. Chief executive Sergio Ermotti said its too early to speculate how Brexit will look but added that negotiations are detrimental to Europe in an already difficult environment.

UK stocks rally

London-listed stocks with a focus on the domestic economy rallied on Tuesday. Travel firm Thomas Cook Group was over 12 percent higher.

Grocery delivery firm Ocado reported a rise in first half pretax profit year-on-year and said that it doesn’t believe Brexit will have any impact on the business. Shares in the firm were over 11 percent higher.

Homebuilders Bovis Homes, Persimmon and Taylor Wimpey were also sharply higher after two days in which they suffered a sell-off. Investors have been concerned that the Brexit vote could halt house buying as well as investment in U.K. property.

Shares of Legal & General rallied after it reported strong solvency figures and said it expects net cash for the first half of 2016 to be up 15 percent.

Source: CNBC

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