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Markets and sterling soar in Boris bounce

Traders embrace ‘Mr Blue Sky’ optimism as clients pile into top stocks

.Jeremy Selwyn
By @SimonEngStand
13 December 2019

THE City embraced a spirit of optimism as UK-focussed shares boomed on the back of Boris Johnson’s election victory.

Utilities that were at risk of being nationalised had Labour won, banks and homebuilders, all rocketed.

Large companies that rely on dollar earnings came off a little, leaving the FTSE 100 up 107 points to 7380. The more UK-focussed FTSE 250 boomed, jumping 893.16 to 21,686.19, an all-time high.

The rise in stocks will be good for pension funds and for City fund managers and traders, as it gives a boost to their performance figures heading into bonus season.

At Markets.com in the City, equity sales staff arrived to the sound of ELO’s Mr Blue Sky. Trading volumes were far higher than usual. Aping the wider mood, one trader said: “Let’s get breakfast done.” Neil Wilson at the broker said: “UK equities were basking in the warm glow of the Tory victory as investors threw out their worst-case scenarios for the British economy. “There are some seriously relieved investors and bankers and corporate financiers. You just cannot understate the sense of relief here in the City.”

Housebuilder shares were among the biggest risers — Persimmon leapt 17% — on hopes that the turgid property market will spring back to life. Stephen Clifton at Knight Frank, said: “Real-estate decision makers have long craved greater political certainty, and this morning, that is the headline they have woken up to. We expect this empower corporates to dust off expansion plans, developers to commence new schemes, and investors at home, and abroad, to quickly buy into what now looks like a very attractively priced real-estate market.”

Sterling jumped overnight as the size of the Tory win became clear. Today it held on to most of those gains at $1.3384 against the dollar. Analysts say it will keep rising as long as the UK economy improves. Benchmark gilt yields added six basis points to 0.876%. Andy Scott at financial adviser JCRA, said: “Sterling is trading this morning slightly off its peak that was reached in the immediate aftermath of the very surprising exit polls. What will be interesting to see, assuming that Brexit will now follow a set course, at least through January 31, is if economic data is a) given a significant boost from the perceived certainty and b) starts to influence sterling again.”

A stronger pound would benefit UK companies that have to import raw materials. Retailers, supermarkets and lesiure companies could benefit. Rising sterling also makes foreign travel more appealing, a boon to the travel sector. City economists say their models already assumed some sort of Boris victory, which means they aren’t yet changing their forecasts for economic growth next year of around 1.5%. Unless GDP figures suddenly boom, the Bank of England is expected to keep interest rates on hold until the back end of 2020.