London midday: Stocks rally on Tory election win; mid-caps outperform

London’s domestically-focused FTSE 250 stole the limelight on Friday, hitting an all-time high as sterling surged after Boris Johnson’s Conservative Party secured a parliamentary majority, with reports of a Sino-US trade deal also buoying the mood.

The small-cap index was up 4.3% at 21,684.45, while the FTSE 100 was 1.9% firmer at 7,408.15, extending earlier gains.

The stellar gains for mid cap stocks, which are more exposed to the UK economy, came as sterling rose 1.8% against the dollar to 1.3396, having briefly hit $1.35 - its best level since May 2018 - after the exit polls. Against the euro, the pound was 1.3% higher at 1.1982, trading at levels not seen since after the EU referendum.

David Cheetham, chief market analyst at XTB, said: "Investors have breathed a huge sigh of relief at the decisive outcome, due to both the clarity that it brings on Brexit (at least in the near term) as well as the avoidance of a left-wing Labour government."

However, he also cautioned that "this is still far from an ideal backdrop for UK, rather the best scenario out of bad bunch".

"With Boris Johnson’s promise to take the UK out of the EU by the end of next year we could well end up with what is effectively a no-deal Brexit. However, the size of the Conservative majority plays into the hands of a softer Brexit now, as the PM will not have to pander to the more Eurosceptic wings of the party and not be reliant on universal support from Tory MPs to pass Brexit-related legislation."

Election aside, sentiment was underpinned by reports that US President Donald Trump had signed off in principle on a tentative 'phase one' trade deal with China. This means that the White House will not go ahead with the $156bn tariffs it had planned to slap on Chinese goods on Sunday. It will also cut by half the existing tariffs on about $360bn of Chinese goods.

Oanda analyst Craig Erlam said: "That's a significant concession and suggests we're about to see a major de-escalation in the trade war.

"While markets are trading higher on the back of these reports, there is an element of caution about the moves we've seen so far. Investors have been too eager before to buy into a trade deal and may be a little reluctant to be so again but should this get over the line, this year's Santa rally may really take off."

In equity markets, stocks with UK exposure were the standout gainers, with housebuilders such as Taylor Wimpey, Berkeley Group and Persimmon all higher. Banks also advanced, with RBS, Lloyds, Barclays and Virgin Money in the green.

Utilities SSE, United Utilities and Centrica shot up as the threat of nationalisation under a Labour government was removed.

On the downside, exporters such as GlaxoSmithKline, Diageo and Unilever fell.

Rentokil Initial suffered heavy losses. Jefferies pointed out that with more than 40% of its revenues coming from the US, it is highly exposed to the GBPUSD rate.

Russ Mould, investment director at AJ Bell, highlighted three sectors in particular that would benefit from the post-election surge in sterling: general retailers, food retailers and travel and leisure. This helps to explain why International Consolidated Airlines, Next, TUI, Dixons Carphone and AB Foods were all prominent risers in early trade, he said.

"This is because a strong pound may cap imported raw material costs for them and also tamp down inflation more generally, putting more money in consumers’ pockets on a real-term, post-inflation basis.

"In addition, a perky pound means it is cheaper to travel abroad than would have otherwise been the case, something which could benefit tour operators and travel agents.

"This is not to say that all of the challenges which face these sectors or their constituents will immediately melt away."

Market Movers

FTSE 100 (UKX) 7,408.15 1.85%
FTSE 250 (MCX) 21,684.45 4.29%
techMARK (TASX) 4,115.87 2.42%

FTSE 100 - Risers

Taylor Wimpey (TW.) 199.55p 14.62%
Berkeley Group Holdings (The) (BKG) 5,104.00p 13.15%
Barratt Developments (BDEV) 755.20p 12.55%
Royal Bank of Scotland Group (RBS) 258.50p 11.28%
Persimmon (PSN) 2,793.00p 11.10%
International Consolidated Airlines Group SA (CDI) (IAG) 615.20p 10.53%
SSE (SSE) 1,425.00p 8.82%
Severn Trent (SVT) 2,407.00p 8.37%
Barclays (BARC) 185.88p 8.16%
Lloyds Banking Group (LLOY) 66.01p 8.00%

FTSE 100 - Fallers

Hikma Pharmaceuticals (HIK) 1,893.00p -1.82%
Rentokil Initial (RTO) 429.30p -1.29%
Relx plc (REL) 1,797.00p -0.94%
GlaxoSmithKline (GSK) 1,731.80p -0.71%
Royal Dutch Shell 'A' (RDSA) 2,174.00p -0.50%
Scottish Mortgage Inv Trust (SMT) 524.50p -0.47%
Royal Dutch Shell 'B' (RDSB) 2,156.00p -0.46%
NMC Health (NMC) 2,517.00p -0.44%
Rolls-Royce Holdings (RR.) 701.40p -0.43%
Standard Chartered (STAN) 715.00p -0.42%

FTSE 250 - Risers

Virgin Money UK (VMUK) 216.00p 18.36%
Tullow Oil (TLW) 69.14p 13.98%
Stagecoach Group (SGC) 150.00p 13.46%
Savills (SVS) 1,147.00p 13.00%
Go-Ahead Group (GOG) 2,194.00p 12.46%
Bellway (BWY) 3,821.00p 11.50%
OneSavings Bank (OSB) 447.80p 11.39%
Wetherspoon (J.D.) (JDW) 1,629.00p 9.92%
Marks & Spencer Group (MKS) 229.30p 9.56%
Bovis Homes Group (BVS) 1,370.00p 9.51%

FTSE 250 - Fallers

Sophos Group (SOPH) 546.80p -1.94%
Baillie Gifford Japan Trust (BGFD) 817.00p -1.57%
Future (FUTR) 1,394.00p -1.41%
Worldwide Healthcare Trust (WWH) 2,995.00p -1.16%
JPMorgan American Inv Trust (JAM) 467.50p -0.95%
JPMorgan Japanese Inv Trust (JFJ) 470.50p -0.74%
Fidelity China Special Situations (FCSS) 219.00p -0.45%
Personal Assets Trust (PNL) 41,900.00p -0.24%
JPMorgan Emerging Markets Inv Trust (JMG) 1,006.00p 0.00%
Fidelity European Values (FEV) 251.50p 0.00%