Good morning.
It’s a Blue Friday in the financial markets, as the Conservative Party secures a stunning election victory in Thursday’s general election.
Sterling has been flying since last night’s exit poll showed Boris Johnson was on track for a big win, and has remained strong as key seats across the country have changed hands.
The Conservatives are now guaranteed a majority, with the latest expectations are for between 78 and 82 seats.
Against the US dollar, sterling has rocketed by three whole cents to around $1.35 — an 18-month high.
Against the euro, sterling has smashed through €1.20. It’s now trading at €1.206 for the first time since July 2016, shortly after the EU referendum.
Investors are relieved that clouds of Brexit uncertainty are now lifting, somewhat. Britain is now clear to leave the EU by the end of January 2020 under Johnson’s deal.
But that will trigger a second phase, and a new deadline of December 2020, to arrange a new trade deal with the EU.
Lee Hardman, currency analyst at MUFG, says the snap election has “well and truly paid off” for Johnson.
It’s the best outcome for financial markets in the near-term. It brings a clear end to the Brexit deadlock in parliament, which will be welcomed and help to ease some of the ongoing uncertainty.
The risk of a “No Deal” Brexit will pushed out until the end to next year, and the new government will not be as reliant on securing support from hard Brexiteers during future negotiations. The pound is well placed to extend its advance even after recent strong gains.
Shares in UK companies are also likely to surge when the London stock market opens in a couple of hours, particularly utility firms which could have faced nationalisation under Labour.
But the wider FTSE 100 could actually be hit by the stronger pound, as it will eat into the earnings of multinationals.
British politics isn’t the only issue dominating the market today. Trader are also digesting a breakthrough, of sorts in the US-China trade war.
US President Donald Trump has reportedly signed off on the terms of a plan that will avoid fresh tariffs being imposed on Chinese goods. Washington is said to have agreed to remove some tariffs, in return for Beijing buying more US farm goods.
Rumours of a deal drove Wall Street to a record high last night. European markets are expected to follow today.
The agenda
- 9:30am GMT: UK inflation expectations for the next 12 months
- 1.30pm GMT: US retail sales for November
