FTSE 100 OPENS UP AND POUND LIFTS AGAINST US DOLLAR AND EURO

The FTSE 100 index opened up while the British pound lifted against the US dollar and the euro today after Labour secured a landslide victory in the General Election.

Sir Keir Starmer will be the UK's new Labour prime minister after a Conservative rout saw former premier Liz Truss and 11 serving Cabinet members lose their seats.

And the FTSE 100 opened up by 0.4 per cent or 33 points to 8,275 in early trading this morning after logging its best day in almost two months in yesterday's session.

Meanwhile sterling held firm after Labour's huge win, rising 0.1 per cent to $1.278 - the highest level since mid June. The pound was also up 0.01 per cent at €1.180.

The pound had largely held steady in overnight trading after exit polls signalled the result, with a big Labour majority already having been priced into financial markets.

Analysts now hope that the landslide election result could bring a sense of stability to investors who anticipate that it could end years of market volatility.

Ben Ritchie, head of developed market equities at Abrdn, said: 'A landslide victory provides the sort of clarity and stability that equity markets need in an increasingly volatile world.

'If the new government get this right, businesses with significant exposure to the UK economy should be the likely winners - a shot in the arm in particular for companies in the FTSE 250 and FTSE Small Cap.'

Sterling has edged up since Rishi Sunak called the election in late May, earlier than anticipated. It is the strongest-performing major currency against the dollar this year, with a gain of 0.3 per cent.

On a trade-weighted basis, the pound is now back where it was in 2016, at the time of the Brexit vote, reflecting a belief among traders and investors that a period of intense market volatility under the Conservatives may be drawing to a close.

Kenneth Broux, head of corporate research for FX and rates at Societe Generale, said: 'We know Labour were going to win, so this doesn't change much and this isn't a game-changer for sterling.

'We now want to know what Labour's plans are. Investors have been long sterling and sentiment has been good and the results won't change that.'

Echoing this sense of calm in the run-up to the election, the premium that investors demand for the extra risk of holding gilts rather than top-rated German 10-year bonds has remained stable this year around 160 basis points.

This is a far cry from the 230 basis points seen during the mini-budget crisis in 2022.

UK 10-year government bond yields have risen this year to around 4.2 per cent, as investors have sold debt based on their assumption that British interest rates will take longer to fall than many had previously anticipated.

The Bank of England is widely expected to lower interest rates at either its August or September meetings.

Analysts added that investors are likely to quickly look beyond the results of this week's election and towards monetary policy.

City Index senior markets strategist Fiona Cincotta said: 'What's going to be really interesting is there isn't actually that much headroom for dramatic change in fiscal policy,

'So I don't think there is anything that is going to massively move the market as far as these elections are concerned now until the Autumn Statement, so the focus is going to shift, probably pretty quickly, back to the Bank of England.'

In Asia overnight, Japan's Nikkei and broader Topix both nudged up to record levels, as did Taiwan's benchmark, before retreating slightly.

It comes as outgoing Prime Minister Mr Sunak said he took responsibility for the electoral mauling inflicted on his party as it suffered its worst ever result.

At a victory rally in London, Sir Keir said the country can now 'get its future back'. He told jubilant activists 'We did it', adding: 'Change begins now.'

It marks a spectacular turnaround since 2019, when Boris Johnson won an 80-seat Conservative majority and Labour suffered its worst result since 1935.

Labour has exceeded 400 Commons seats, with the Conservatives set to fall well below their previous low of 156 MPs set in 1906.

The result is likely to trigger a fresh round of infighting within the Tory Party as MPs scramble to replace Mr Sunak, who is expected to resign in the wake of the defeat.

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2024-07-05T08:06:01Z dg43tfdfdgfd