What to Watch: European markets hit record high on trade deal optimism and Tory win
Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:
European stocks buoyed by UK election and trade deal hopes
European markets rallied to record highs on Friday, boosted by a decisive result in the UK election and hints from US President Donald Trump that a trade deal with China could be getting closer.
The STOXX 600 (EXSA.DE), which tracks the 600 biggest companies across Europe, rallied 1.4% to new all-time highs, surpassing the high reached in 2015. In Paris, the Euronext 100 (^N100) was up 1% and surpassed highs reached in 2000.
Overnight, the Conservative party won their biggest election victory since 1987 in the UK, paving the way for progress on Brexit. Trump tweeted on Friday morning that result meant the US could now strike a “massive” trade deal with the UK.
Trump had already laid the groundwork for an optimistic mood in markets by tweeting yesterday afternoon that the US was “VERY close to a BIG DEAL with China.”
At just before 9am, the FTSE 100 (^FTSE) was up 1.3%, Germany’s DAX (^GDAXI) was up 1.1%, and France’s CAC 40 (^FCHI) was up 1%.
“You’d be forgiven for thinking that the general election would be Friday’s biggest news market-wise,” said Connor Campbell, a financial analyst at trading platform SpreadEx.
“However, for the rest of the world, far more important were reports that the US had reached a phase one trade agreement ‘in principle’ with China, just in time to avoid the next round of tariffs scheduled for this Sunday.”
Overnight in Asia, Japan’s Nikkei (^N225) closed up 2.5%, the Hong Kong Hang Seng Index (^HSI) ended up 2.5%, and China’s Shanghai Composite (000001.SS) rose 1.7%.
Pound, UK stocks jump on Boris victory
UK-focused companies saw double-digit share price gains on Friday morning, boosted by the Conservative party’s convincing election win.
House builder Persimmon (PSN.L) rallied over 11%, Taylor Wimpey (TW.L) rose 12.1%, Royal Bank of Scotland (RBS.L) rallied by 10.8%, and Lloyds Bank (LLOY.L) rallied 8%. These were just some of the biggest risers on the London Stock Exchange in early trade.
“The market is now digesting the prospect of a stronger UK economy as a result of the Conservative victory, which explains why shares in banks, housebuilders, leisure companies and retailers jumped following the General Election news,” said Russ Mould, investment director at stockbroker AJ Bell. (Read more about why these stocks are rallying here).
Stocks threatened with being nationalised by the Labour party also surged. British Gas-owner Centrica (CNA.L) rose 7.5%, water supplier United Utilities (UU.L) rallied 7.2%, and Royal Mail (RMG.L) popped 5.2%.
Overnight, the pound rallied over 2% against the dollar (GBPUSD=X) to an 18-month high and 1.7% against the euro (GBPEUR=X) to a 31-month high. Sterling sold off slightly on Friday morning but remains at multi-month highs.
The surge in sterling capped gains for the FTSE 100. The FTSE 100 rose 1.4%, compared to a 4% surge in the more domestically-focused FTSE 250.
Around 70% of companies on the FTSE 100 make at least some of their earnings in dollars, meaning a rise in sterling makes some company stock look expensive. GlaxoSmithKline (GSK.L) fell 2.5%, AstraZeneca (AZN.L) fell 1.7%, and spirit group Diageo (DGE.L) fell 1.9%.
What to expect in the US
US stocks futures point to a higher open. S&P500 futures (ES=F) were up 0.4%, Dow Jones futures (YM=F) were up 0.4%, and Nasdaq futures (NQ=F) were up 0.5%.
8 companies are reporting in the US later today.
