The pound recorded its biggest rise in 10 years after Boris Johnson’s Conservative Party secured a landslide victory in the general election.
As the exit poll predicted a Tory majority, investors rushed to buy sterling, with the currency surging over 3% against the dollar to $1.35, a 19-month high and the biggest intraday trading rise since 2009.
Investors cheered the news of Johnson’s victory, hoping it will end the Brexit uncertainty once and for all and allow the PM to strike a trade deal with the EU. They had also been nervous about a potential Labour win, with Corbyn promising a borrowing splurge and the nationalisation of rail, energy and telecoms companies.
Investors were further bouyed by the Labour leader’s announcement he will not take the party into the next general election, eliminating the threat of a future Corbyn-led government.
Russ Mould, investment director at AJ Bell, said: “The Conservative majority win at the General Election has driven a rally in the pound and UK domestic stocks. The currency jumped last night on confirmation that Boris Johnson’s party had been victorious and that this outcome removes several key risks that have been hanging over the UK stock market.
“The fact that there won’t be a hung parliament has given support to equities. The market now has more confidence that Johnson should be able to pass a Brexit deal and for the UK to formally leave the EU at the end of January 2020.”
However, Mould warned that “much uncertainty with regards to Brexit” still remains and so “today’s market fanfare may not necessarily be setting the tone for how all of 2020 will play out”.
He added: “Markets hate uncertainty and ultimately Brexit will become centre-stage again. Investors have been served a distraction in the form of the General Election in recent weeks but the focus will now have to shift back to the structure of any trade deal and what could happen to the UK at the end of the 2020 transition period.
“Short-term the Conservatives have discussed increased spending which could give the economy a boost. Longer-term still remains uncertain and so markets are not going to keep opening bottles of champagne to toast a new dawn for the country.”
The FTSE 100, which tends to move in the opposite direction to the pound, as many of its constituencies generate revenues overseas, opened in the red, falling 0.6% to 7,231.81pts.
The more domestic FTSE 250 jumped 1.8% to 21,166.9pts.
UK-based stocks were among the biggest risers as the markets woke-up to the election results with Sainsbury’s (SBRY) opening 3.8% higher at 225.80p, Tesco (TSCO) up 3.9% to 251.10p, Marks & Spencer (MKS) up 6.7% at 223.40p, Morrisons (MRW) up 3.6% to 201p.
Analysts Bernstein suggested that ”pentup consumer demand/confidence was likely to result in 200bps in additional volume growth in the next few weeks and months for the supermarkets, as well as a delayed impact on… inflation [due to the stronger pound], and a rerating of stocks based on higher sales momentum and increased investor willingness to invest in UK plc”.
”Consumer confidence rarely makes a big difference but the protracted uncertainty around Brexit and the incessant media coverage was strong enough for consumers to reduce volumes by ~100-150bps. The -100 bps below trend volume could shift the other way to +100 bps for a few months, causing a 200 bps period on period step-up in volumes.
“This is just in time for the most important food retail trading event: Christmas where families traditionally trade up when they feel good. Surges in demand also lower food waste, further boosting margins.”
In other economic news, US President Donald Trump congratulated Johnson on his win and tweeted: “Britain and the United States will now be free to strike a massive new Trade Deal after Brexit. This deal has the potential to be far bigger and more lucrative than any deal that could be made with the EU.”
Read industry analysis of the general election result as it unfolds this morning on thegrocer.co.uk.
In this week’s issue of The Grocer, the latest of a busy year, you can also read about the fundraising efforts of Cellular Agriculture, a UK-based company developing lab-grown meat, the ultimatum the CMA has given Amazon and Deliveroo to address competition concerns after the US online giant invested £500m in the delivery firm, and the plunge in profits at Gressingham owner Green Label Foods.
Read more at: https://www.thegrocer.co.uk/finance
Yesterday in the City
The FTSE 100 closed 1% higher at 7,287.00pts, hours ahead of the announcement of the general election’s results.
UK supermarkets were on the rise, with Tesco (TSCO) closing 1.1% higher at 242.30p, Ocado (OCDO) up 0.7% to 1,206p, Sainsbury’s 0.1% to 217.50p, Morrisons (MRW) up 0.7% at 194.45p and Marks & Spencer (MKS) up 1.7% at 210.70p.