London open: Stocks rally on landslide Tory victory; FTSE 250 shines

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.

At 0840 GMT, the mid-cap index was up 4% at 21,621.47, while the FTSE 100 was 1% firmer at 7,349.24.

The stellar gains for mid cap stocks, which are more exposed to the UK economy, came as sterling rose 2% against the dollar to 1.3417, having briefly hit $1.35 - its best level since May 2018 - after the exit polls. Against the euro, the pound was 1.6% higher at 1.2015, trading at levels not seen since after the EU referendum.

A stronger pound tends to weigh on the FTSE 100 as around 70% of its constituents derive most of their earnings from overseas.

Gains on the top-flight index were also a little less pronounced than the broader rally in European markets, which had the benchmark Stoxx Europe 600 index up 1.5%, and Germany’s DAX and France’s CAC 40 both up 1.2%.

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 Persimmon, Taylor Wimpey and Barratt Developments all higher. Banks also advanced, with RBS and Lloyds in the green, while utilities Centrica and SSE shot up as the threat of nationalisation under a Labour government was removed.

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

Neil Wilson, chief market analyst at Markets.com, said: "Definition of a relief rally: unloved, undervalued UK-focused stocks are back in fashion as a wave of relief descended on the City."

"UK equities were basking in the warm glow of the Tory victory as investors threw out their worst-case scenarios for the British economy. There are some seriously relieved investors - and bankers and corporate financiers. In particular, we are seeing some absolutely stonking moves among the UK-focused equities."

"Anything largely exposed to the UK economy took off at the open, while the drag on dollar earners from the stronger pound was not so large as to worry the market. It all points to a huge vote of confidence in the prospects for the British economy as a result of the Tory win. You just cannot understate the sense of relief here in the City."

Connor Campbell, market analyst at Spreadex, highlighted the absurdity of financial markets.

"It is weird how the market works sometimes. In the summer of 2016 the pound plunged due to the success of Leave in the EU referendum. Now, three and a half years on, it has surged on the back of an election result that guarantees an aggressive form of Brexit will happen."

Market Movers

FTSE 100 (UKX) 7,349.24 1.04%
FTSE 250 (MCX) 21,621.47 3.98%
techMARK (TASX) 4,077.49 1.46%

FTSE 100 - Risers

Persimmon (PSN) 2,819.00p 12.13%
Taylor Wimpey (TW.) 194.75p 11.86%
Royal Bank of Scotland Group (RBS) 257.80p 10.98%
Barratt Developments (BDEV) 741.20p 10.46%
Auto Trader Group (AUTO) 590.20p 9.91%
Berkeley Group Holdings (The) (BKG) 4,953.00p 9.80%
Lloyds Banking Group (LLOY) 66.97p 9.57%
SSE (SSE) 1,432.00p 9.35%
BT Group (BT.A) 205.60p 8.62%
Barclays (BARC) 185.46p 7.91%

FTSE 100 - Fallers

GlaxoSmithKline (GSK) 1,701.20p -2.47%
Rentokil Initial (RTO) 424.40p -2.41%
Diageo (DGE) 2,998.50p -2.01%
AstraZeneca (AZN) 7,154.00p -1.66%
Coca-Cola HBC AG (CDI) (CCH) 2,427.00p -1.62%
Hikma Pharmaceuticals (HIK) 1,899.00p -1.50%
Relx plc (REL) 1,788.50p -1.41%
Unilever (ULVR) 4,466.50p -1.39%
Royal Dutch Shell 'A' (RDSA) 2,158.00p -1.24%
Scottish Mortgage Inv Trust (SMT) 520.50p -1.23%

FTSE 250 - Risers

Virgin Money UK (VMUK) 211.90p 16.11%
Crest Nicholson Holdings (CRST) 447.40p 11.96%
OneSavings Bank (OSB) 447.40p 11.29%
Savills (SVS) 1,129.00p 11.23%
Bellway (BWY) 3,807.00p 11.09%
Travis Perkins (TPK) 1,707.00p 10.70%
Riverstone Energy Limited (RSE) 450.00p 10.16%
Dixons Carphone (DC.) 155.45p 10.05%
Stagecoach Group (SGC) 145.10p 9.76%
Redrow (RDW) 750.00p 9.65%

FTSE 250 - Fallers

Baillie Gifford Japan Trust (BGFD) 815.00p -1.81%
Sophos Group (SOPH) 549.00p -1.54%
Worldwide Healthcare Trust (WWH) 2,985.00p -1.49%
JPMorgan American Inv Trust (JAM) 465.00p -1.48%
JPMorgan Japanese Inv Trust (JFJ) 469.00p -1.05%
Pershing Square Holdings Ltd NPV (PSH) 1,378.00p -0.72%
Airtel Africa (AAF) 77.70p -0.70%
Alliance Trust (ATST) 811.00p -0.61%
Templeton Emerging Markets Inv Trust (TEM) 798.00p -0.50%
Scottish Inv Trust (SCIN) 815.00p -0.49%