Global equities surged on Friday, as expected, following the UK election which handed a decisive win to Boris Johnson’s Conservatives, and ahead of the expected reveal of a “Phase One” trade deal between the world’s two largest economies.
Sterling held massive gains. “The Pound has roughly reached our near-term targets (1.35 in GBP/USD and 0.82 in EUR/GBP) and we therefore close our latest recommended long for a hypothetical gain of 3.1%”, Goldman said Friday, noting that although there’s probably a “less compelling risk/reward proposition over the near term, Sterling may drift higher over the coming months as sidelined investors reengage in UK assets”.
Speaking of “reengagement”, the FTSE 250 was a standout, exploding more than 5% higher (to a record), before calming down a bit. Volume was more than 400% above the 100-day average.
Gilts obviously plunged. 10-year UK yields hit the highest since June, before paring the rise to a much more pedestrian ~3bps. Money markets cut the odds of a BOE cut by August to 30% from 50% yesterday. The FTSE 100 got a near 2% bump.
“The trade negotiations will provide plenty of uncertainty and the economy’s problems won’t go away, though neither Mr. Johnson’s track record nor his manifesto suggest fiscal austerity”, SocGen’s Kit Juckes said Friday. “We think EUR/GBP will spend the next year in a 0.82-0.88 range, averaging 0.85”, he added, in the course of noting that while the euro “is helped by decreasing trade clouds and progress on Brexit, domestic economic weakness remains the albatross round its neck”, even as EUR/USD has broken above its 200-day moving average “for only the second time since the spring of 2018”.
Meanwhile, the Stoxx 600 touched a record, blowing through the previous high-water mark set in 2015. The DAX rose more than 1%, as did Asian shares.
“It’s turning into a merry Christmas as we’re going into the end of the year”, Mitul Kotecha, senior EM strategist at TD Securities, told Bloomberg TV.