LONDON MARKET CLOSE: Focus Turns To Brexit After Emphatic Tory Win

(Alliance News) - Stocks in London ended sharply higher on Friday following a resounding win for the Conservative Party in the UK general election, as attention now shifts to how the government can secure a favourable Brexit deal.

UK Prime Minister Boris Johnson pledged to heal the divisions of Brexit, as he returned to Downing Street after securing a crushing election victory over Labour Party.

Speaking on the steps of No 10 after Labour's "Red Wall" strongholds across the Midlands and the north of England fell to the Tories, the PM said he had an "overwhelming mandate" to take the UK out of the EU by the end of January.

With all 650 seats declared, Johnson's Conservatives ended with a majority of 80 - the party's best election performance since Margaret Thatcher in the 1980s.

Johnson declared that his party has "smashed the roadblock" and "ended the gridlock" as he hailed the emphatic victory.

European Council President Charles Michel congratulated Johnson on his victory, tweeting: "We expect a vote on the Withdrawal Agreement as soon as possible."

The FTSE 100 index closed up 79.97 points, or 1.1% at 7,353.44, ending the week up 1.6%.

The FTSE 250 ended up 21,507.79 points, or 3.4% at 21,507.79, ending the week up 2.8%. The midcap index hit an all-time high of 21,910.75 in early trade.

The AIM All-Share closed up 17.74 points, or 2.0% at 917.07, ending the week up 1.0%.

The Cboe UK 100 index finished up 0.9% at 12,460.70. The Cboe UK 250 closed up 3.8% at 19,430.12.53 and the Cboe UK Small Companies ended up 2.9% at 11,675.59.

In Paris the CAC 40 ended up 0.6%, while the DAX 30 in Frankfurt ended up 0.5%.

"Investors celebrate the prospect of an end to the current Brexit deadlock, and look towards the next stage of talks, which will focus on the political declaration and the prospects for trade. While these talks are expected to be more complicated than the withdrawal agreement, the fact that Boris Johnson has such a big mandate means that he has the luxury of being less exposed to any minority pressure groups within his own party, as well outside of it," said CMC Markets analyst Michael Hewson.

"This means he can probably afford to be more pragmatic about what to do, something that Theresa May found impossible when she lost her majority in 2017. He is also coming at from the direction of the UK already being aligned from a regulatory point of view, meaning that any agreement is likely to be about the amount of divergence," Hewson added.

In the FTSE 100, companies which are closely tied to the UK economy, such as housebuilders and domestic lenders, ended sharply higher.

Taylor Wimpey, Barratt Developments, Persimmon and Berkeley Group ended up 15%, 14%, 12% and 14% respectively.

Midcap housebuilders, Bellway, Redrow and Crest Nicholson ended up 12%, 4.7% and 8.6% respectively.

Royal Bank of Scotland, Lloyds Banking and Barclays ended up 8.4%, 5.3% and 6.2% respectively. Midcap challenger bank Virgin Money UK closed the best performer, up 19%.

International Consolidated Airlines Group closed up 13% after HSBC raised the British Airways parent to Buy from Hold, saying the airline will benefit from a clearer economic outlook following the Tory win.

In addition, stocks that were under pressure heading into the election amid the risk of nationalisation under a Labour government were higher.

Utilities SSE, Severn Trent and British Gas-owner Centrica closed up 8.1%, 9% and 8.8% respectively.

BT closed up 6.5%. Before the election Corbyn had pledged to bring the telecommunications company's Openreach broadband infrastructure arm under state ownership.

Additionally, BT has agreed to sell its Spanish business to Portobello Capital, Spain's El Pais newspaper reported. Citing sources close to the matter, El Pais said the sale of BT Spain will be unveiled in the company days.

Rail and bus operators, another sector threatened with nationalisation by the Labour manifesto, were higher. Stagecoach Group, Go-Ahead Group and FirstGroup closed up 17%, 9% and 3.9% respectively.

The pound was quoted at USD1.3346 at the London equities close, up from USD1.3127 at the close Thursday, easing from the highs reached as the first election results trickled through overnight.

Sterling surged to a 19-month high of USD1.3514 overnight versus the greenback as it became clear the Conservatives would secure a majority.

Forex.com analyst Fawad Razaqzada commented: "Sterling had been rising for weeks leading up to the elections as investors positioned themselves for a Tory majority outcome. Now that their expectations have been met, and the pound soared to the key psychologically-important USD1.35 handle, it makes sense for some to book some profit. However, the path of least resistance remains to the upside and we could see renewed buying once the impact of profit-taking wears off."

The euro stood at USD1.1123 at the European equities close, firm against USD1.1118 a day before.

On the continent, Germany's central bank slashed its 2020 growth forecast for Europe's largest economy in half, but said an export-powered rebound was on the cards in the following years.

The Bundesbank predicted 0.6% expansion next year, half the pace it had reckoned with in its last outlook in June.

Against the yen, the dollar was trading at JPY109.35 at the London close, up from JPY109.10 late Thursday.

Stocks in New York opened at fresh record intraday highs as investors cheered the trade deal progress, however have since eased back in volatile trading.

The DJIA was down 0.1%, the S&P 500 index down 0.2% and the Nasdaq Composite was flat.

US President Donald Trump confirmed Friday he is canceling new tariffs on China, that had been due to kick in at the end of this week, as part of a "phase one" trade deal.

The tariffs "will not be charged because of the fact that we made the deal," he tweeted after Beijing first announced a breakthrough in the US-China trade war.

Trump said that existing tariffs of 25% on USD250 billion of Chinese imports will stay in place pending further negotiations on a second phase deal, along with 7.5% tariffs on another USD120 billion of imports.

The US president said China has agreed to "massive" but unspecified purchases of US farm and manufactured products.

"The phase one US-China trade deal focuses on increased Chinese purchases on agricultural products, in exchange for a lessening of the current tariffs in place. The sceptics will note that China has hugely cut down on their purchases of US agricultural goods, and thus the devil will be in the detail to note whether this is really the boon Trump insists it is. However, for markets this breakthrough is hugely notable as it eases the shackles placed upon a country which remains one of the biggest drivers of economic growth," said IG Group's Josh Mahony.

Brent oil was quoted at USD64.58 a barrel at the London equities close, higher than USD64.38 at the same time the prior day.

Gold was quoted at USD1,471.61 an ounce at the London equities close, up from USD1,466.10 late Thursday.

The economic events calendar on Monday has manufacturing and services PMI readings from France, Germany, eurozone and the UK at 0815 GMT, 0830 GMT, 0900 GMT and 0930 GMT respectively.

The UK corporate calendar on Monday has annual results from defence countermeasures maker Chemring Group and interim results from sportswear retailer Sports Direct International.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

London market Close is available to subscribers as an email newsletter. Contact info@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.