Investors are reacting positively to Boris Johnson securing his position as prime minister of the U.K. with the Conservative and Unionist Party winning the general election with a thumping majority.
The Conservative and Unionist Party won 364 seats which is their largest majority since 1987 and unsurprisingly the UK markets reacted favourably. The pound sterling is up 3 cents at $1.34 and the FTSE 100 was up 1.7%.
Johnson has vowed to get Brexit done in a rousing victory speech.
President Trump took to Twitter to congratulate Johnson:
The Winning Motto, “Get Brexit Done”
It is almost three and a half years since the U.K. voted to leave the EU and it might finally be on track to withdraw from the continent next month.
Olivier Konzeoue, FX Sales Trader at Saxo Markets, says “'Get Brexit done', is the winning motto which led to a landslide victory for the Conservative party and Johnson becoming the "Champion of Brexit" during the campaign.
Konzeoue highlights three takeaways for markets:
- No deal risk reduced to zero
- Corbyn risk reduced to zero
- The large Tory majority will allow Boris Johnson to potentially have a softer approach to Brexit, as he won't have to rely so much on the ERG and the extreme right factions of the Conservative Party to get new laws voted through Parliament
"Markets came into the event fairly neutral with a long bias but are now in digesting mode. We believe we could see a second leg higher for sterling and U.K. assets, but the bulk of the current underweight in U.K. asset allocation is expected to be addressed a few weeks from now,” said Konzeoue.
It seems uncertainty has been removed and capital inflows will gradually resurface, but much remains to be done with regards to achieving a trade deal with Europe. “In short, the result is positive for markets, but patience will be key from now on," adds Konzeoue.
Pound Sterling Soared High
Andy Scott, associate director at JCRA, highlights the pound sterling soared higher by over 2% as nervous traders who had been selling sterling during the day, just in case it was another hung parliament, began buying it with gusto.
“I suspect there was as much relief, as there was excitement at the size of the majority that was so unexpected. Sterling is now set to challenge some fairly significant levels against both the euro and the US dollar. If sterling breaks above these levels, it could very well drive some big moves higher towards 1.25 and 1.40, at least in the short term,” said Scott.
Michael Brown, senior analyst at Caxton a foreign exchange and payments firm highlights the pound sterling is currently trading near a three-and-a-half year high against the euro and an 18 month high against the dollar.
“The election outcome is the ideal one for sterling for three reasons. Firstly, the Tories have won a clear majority, allowing a smooth and orderly Brexit to take place at the end of January. Secondly, with such a vast majority, PM Johnson has a significant degree of flexibility over the Brexit process, perhaps to pursue a ‘softer’ Brexit and closer relationship with the EU or to extend the transition period if he desires to do either,” adds Brown.
The iShares MSCI United Kingdom Index (NYSE: EWU) was trading 2.2% higher at the time of publication Friday, while the Vanguard FTSE Europe ETF (NYSE: VGK) was UP 0.79%.
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