Stocks resurged Thursday afternoon after Bloomberg reported that U.S. negotiators had reached terms of a phase one trade deal that now awaits approval from President Donald Trump
The U.K. will leave the EU on January 31, leaving the economy vulnerable to the shape and content of a future trade deal
Boris Johnson’s Conservative Party has won Britain’s crunch election and gained a decisive majority as voters backed his pledge to “get Brexit done.”
The British pound lost steam on Friday morning after topping $1.35 in the aftermath of the commanding Conservative victory in the general election. The pound fell back to $1.3370 from as high as $1.3515, though that's still far above the $1.3164 level from Thursday. The pound retreated to 1.1970 euros from 1.2082 euros, though that's above the 1.1826 euros level from Thursday.
Tom Stevenson, investment director of Fidelity International, said Prime Minister Boris Johnson is now "unworried by the Brexiteer wing" after the commanding Conservative victory in the general election. "The pound reacted so positively to the expected big Conservative majority because it raises the chances of a closer alignment with Europe in the long run," he said. "Unworried by the Brexiteer wing of his party, Mr Johnson has more freedom to conduct the forthcoming trade negotiations as he chooses. It is not clear yet whether freedom from the Brexiteer wing of the party will see the PM pursue a hard Brexit or tack back to the centre ground and greater alignment with the EU."
Goldman Sachs strategists reiterated a call on Friday to go long U.K. domestic stocks, particularly homebuilders and domestic banks. "Clarity on the UK's terms of exit from the EU should unlock pent-up business investment; the reversal of a decade of fiscal consolidation should provide a fillip to domestic demand; and a pick-up in global growth should underpin a recovery in net exports," said analysts Zach Pandl, Sharon Bell and George Cole. They estimated that each additional 1 percentage point increase in U.K. GDP growth would add to earnings per share growth about 3 percentage points to FTSE 100 , 5 percentage points to FTSE 250 and 11 percentage points to domestically-oriented U.K. stocks.
An economist said the Conservative victory in the general election will give the British economy some "breathing space" to recover after not growing at all in the three months to October. "Business confidence should recover, now that a no-deal Brexit isn't a risk in January 2020 and the outlook for domestic policy over the next five years is relatively clear," said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics. "Many firms will be able to invest, knowing that corporation tax likely won't rise, wages won't increase rapidly and Labour's socialist agenda will not be implemented soon." The rise in sterling should help keep CPI below the Bank of England's 2% target, he added.
Domestic-oriented, U.K. midcaps surged in early action Friday after the Conservatives secured a decisive general election victory, but top British stocks were largely left behind. The midcap FTSE 250 jumped 4% while the large-cap FTSE 100 added just 0.5%, as the surge in sterling weighed on big U.K.-based multinationals who generate the bulk of their revenue outside of the country. Big gainers in the FTSE 250 included Travis Perkins , up 19%, and Virgin Money UK , up 18%.
Deutsche Bank advised clients not to chase the British pound after sterling's massive gains overnight after the Conservatives secured a majority in Parliament. "We would be cautious in chasing any move higher in the pound, however, and remain neutral. The next focus will be the government's policy on the UK and EU future economic relationship, a budget early next year, and the Bank of England's monetary policy meeting next week," the bank said.
Equity strategists at Citi said the U.K. election result "is probably as good as it gets." The bank said the FTSE 250 could rally even more than the FTSE 100 given its higher exposure to the domestic economy. Citi has an 8,100 target on the FTSE 100 for the end of 2020. That said, the bank says it remains concerns about the implications of Brexit for the U.K. economy and is forecasting a mild recession in 2021. The bank also expects more debt-financed M&A and share buybacks as the U.K. cost of equity, at 8.2%, is far higher than the cost of debt, at 2.5%.
In a tweet following Johnson’s win, Trump said: “Congratulations to Boris Johnson on his great WIN! Britain and the United States will now be free to strike a massive new Trade Deal after BREXIT.”
Brexit Party leader Nigel Farage fueled speculation of a return to the U.S. to help Donald Trump’s presidential campaign as his party headed for failure in the U.K. election.
It may seem as if the U.K. has been mired in political turmoil forever, but the deadlock over Brexit and the country’s future may just be broken this week when the public goes to polls.
Investing.com - Gold prices are modestly down on Friday in Asia after reports said an agreement in principle had been reached on a phase one trade deal between the U.S. and China.
The U.S announce an in-principal trade agreement with China and exit polls point to a Tory Party majority victory. It’s risk-on…
Based on today’s price action and the current price at $1472.60, the direction of the market into the close is likely to be determined by trader reaction to $1474.10 to $1470.00.
After chairing the central bank’s governing council, she signalled continuity with the loose monetary policies designed by her predecessor Mario Draghi. But she also indicated that she would stick to her own style of communicating with market
Investing.com - The British pound jumped as the U.K. general election exit poll showed Thursday the ruling Conservative party running away with a big majority in parliament.
Investing.com - The major stock indexes surged to new intraday highs, and the S&P; 500 and Nasdaq Composite indices closed at new records on reports that the United States and China have "an agreement in principle" on a phase one trade deal.
Christine Lagarde, the new president of the ECB, presided over her first policy meeting on Thursday. Lagarde didn’t make any policy changes, but her promise to review ECB operations could lead to changes at the powerful central bank.
Gold markets initially tried to rally during the trading session on Thursday but ran into a lot of resistance in the form of a downtrend line. Beyond that, we also have the 50 day EMA starting to influence the market as well.
The US dollar has gone back and forth during the trading session on Thursday, as we await the tariff decision over the weekend. The December 15 headline is quickly approaching, and that of course is going to be paramount.