Sterling and FTSE soar after Tories gain overall majority

World bond and stock markets rose on Friday after a bruising week and sterling surged to a two-month high after the business-friendly Conservative party won Britain’s parliamentary election.

Sterling leapt 1.3 per cent against the dollar and London’s FTSE led equity markets with a 1.9 per cent jump to help European shares rebound from two-month lows and wipe out what had looked like being a second week of losses.

With almost all the seats counted in the UK, the Conservatives were set to govern for another five years, quashing pre-election fears that the result might be too close for any party to form a stable government.

Traders and investors breathed a collective sigh of relief, putting aside for now concerns about a planned referendum that could lead to Britain leaving the European Union and focusing instead on hopes that the country will remain one of the fastest growing Western economies.

“The moves in sterling overnight to the $1.54 level, and the follow-through in the stock and gilt markets, have produced a sigh of relief that the threat of a dysfunctional government has dissipated,” said Matthew Beesley, head of global equities at Henderson’s. “This result is better than financial markets, or indeed betting markets, dared to believe. It answers many questions. But it asks quite a few too.”

Confidence was also given a big lift by Europe’s bond markets as they stabilised after one of their most turbulent weeks in decades. Government bond yields from Germany to Greece dropped back in morning trading, though the recent pounding - triggered by signs of a resurgence in inflation and a rebellion against negative yields - kept normally rock-solid German Bunds on edge.

The yield on Irish 10-year notes strengthened to 1.2 per cent, after reaching 1.3 per cent yesterday, its highest level in 2015.

A rebound in US jobs numbers lifted US stock futures also helped European shares consolidate their biggest daily gain since January. Non-farm payrolls increased by 223,000, just below the 224,000 that economists polled by Reuters had expected. The unemployment rate dropped to 5.4 per cent in April, near a seven-year low, indicating a pickup in growth that may lead the Federal Reserve to raise interest rates this year.

REUTERS