Bonds and stocks rebound, sterling soars after UK election

Sunday, 10 May 2015 16:47 - - {{hitsCtrl.values.hits}}

Pedestrians, holding umbrellas, walk past an electronic board showing stock prices outside a brokerage in Tokyo January 15, 2015

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

Sterling was up 1.4% GBP=D4 against the dollar and London’s FTSE .FTSE led equity markets with a 1.5% surge to help European shares rebound from two-month lows and wipe out what had looked like being a second week of losses.

With more than 75% of the seats counted in the UK, the Conservatives were set to govern for another five years, quashing the pre-election fears the result could have been too close to form a stable government.

“The surprisingly decisive result reduces uncertainty over the next (UK) government,” analysts at Morgan Stanley wrote in a note.

Confidence was also given a big lift as bond markets recovered after one of the most turbulent weeks in Europe for decades.

Most government bond yields dropped back in early trading but the pounding of recent days which has been triggered by signs of a rebound in inflation, still left normally rock-solid German Bunds on course for a big weekly spike in yields. [EUR/GVD]

The bond stabilisation helped investors cast off their normal caution ahead of monthly US non-farm payroll jobs data and its implications for when the Federal Reserve raises interest rates.

Economist polled by Reuters expect the figures to show a jump of 224,000 new jobs in April after 126,000 in March and a run of generally disappointing US data since then.

“The US economy had virtually a zero growth in January-March. If it remains weak after April, a rate hike by the Federal Reserve may be delayed further,” said Shuji Shirota, head of macro economics strategy at HSBC Securities in Tokyo.

The dollar .DXY inched up ahead of the data but it was completely in the shadow of sterling following the election outcome.

As well as against the dollar, the UK currency 1.7% against the euro GBPEUR= and yen GBPJPY= to notch its biggest trade-weighted rise since 2010.

“Viewed within the context of the UK’s large current account deficit, the policy uncertainty removed by today’s result will be a relief for some previously nervous foreign investors,” said Adam Myers, European head of FX strategy at Credit Agricole.