Stocks enjoy global rally as Johnson's exit stings pound

A good day for stock markets

A global stocks rally gathered steam Monday, fuelled by economic optimism, while the British foreign minister's sudden resignation over Brexit depressed the pound.

Key European equity markets were all higher at the close, extending pre-weekend gains after Friday's solid American jobs report boosted confidence in the US economy and helped soothe trade war nerves.

Wall Street built on opening gains throughout the morning, and the Dow was over one percent ahead on the day as midday neared.

Analysts at Charles Schwab credited the US jobs report with fanning "global economic optimism" allowing investors to take a welcome breather from festering trade war concerns which have dogged markets for months.

On Friday, Washington rolled out tariffs on $34 billion of Chinese goods, sparking retaliatory measures from Beijing.

- Sterling yo-yo -

The British pound meanwhile had a rollercoaster session. It rose initially on news that Prime Minister Theresa May's Brexit minister David Davis had resigned.

Analysts said the news persuaded many investors that Britain could be heading towards a so-called "soft" Brexit, and that took sterling to a one-month high against the dollar above $1.33.

"The resignation of David Davis has helped encourage markets that we will see a softer approach to Brexit going forward," agreed IG analyst Joshua Mahony.

But when Boris Johnson also resigned, the currency took an abrupt downward turn as the markets went into political crisis mode.

"There's been some swift downside seen in the pound in recent trade with the currency coming under pressure after another key politician has resigned," said David Cheetham, chief market analyst at XTB.

Calling Johnson's departure a "significant event from a market standpoint and something of a shock", Cheetham said the chances of a challenge to May's leadership "have now increased markedly".

Lukman Otunuga, a research analyst at FXTM, said fears of an early British general election had now crept into the market.

"Market uncertainty over Brexit has reached new heights after Boris Johnson resigned as Foreign Secretary this afternoon," said Otunuga.

- 'Heavy losses' ahead? -

Brexit uncertainty could well delay Bank of England interest rate increases, he said, expectations of which had been bolstering the pound.

"If expectations continue to diminish over the central bank raising UK interest rates, sterling is at risk of experiencing heavy losses down the road," he said.

Sterling's weakness, however, helped make London's FTSE stock market index the European star performer, as shares in British multinationals gained from a falling currency which typically boosts their bottom line.

Global share markets had bounced higher on Friday after data showed the US economy created more than 200,000 jobs in June, beating expectations.

That was compounded by the fact that average hourly earnings growth remained sluggish, while the unemployment rate edged up, easing pressure on the Federal Reserve to lift interest rates.

- Key figures around 1545 GMT -

London - FTSE 100: UP 0.9 percent at 7,687.99 points (close)

Frankfurt - DAX 30: UP 0.4 percent at 12,543.89 (close)

Paris - CAC 40: UP 0.4 percent at 5,398.11 (close)

EURO STOXX 50: UP 0.4 percent at 3,460.44

New York - Dow: UP 1.1 percent at 24,724.12

Tokyo - Nikkei 225: UP 1.2 percent at 22,052.18 (close)

Hong Kong - Hang Seng: UP 1.3 percent at 28,688.50 (close)

Shanghai - Composite: UP 2.5 percent at 2,815.11 (close)

Euro/dollar: UP at $1.1746 from $1.1744 at 2030 GMT Thursday

Pound/dollar: DOWN at $1.3240 from $1.3281

Dollar/yen: UP at 110.75 yen from 110.43 yen

Oil - Brent Crude: UP 87 cents at $77.98 per barrel

Oil - West Texas Intermediate: DOWN 32 cents at $73.48