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London pre-open: Stocks seen up on Tory win but pound rally could cap gains

By Michele Maatouk

Date: Friday 13 Dec 2019

London pre-open: Stocks seen up on Tory win but pound rally could cap gains

(Sharecast News) - Stocks in London looked set to rise at the open on Friday although gains could be capped by a stronger pound after Boris Johnson's Conservative Party secured a parliamentary majority.
The FTSE 100 was called to open up around 30 points at 7,300. The unspectacular gains were down to a surge in the pound, which saw its biggest rally in more than a decade overnight as exit polls suggested a big Tory majority.

At 0715 GMT, sterling was up 2.2% against the dollar at 1.3346 and 1.8% higher versus the euro at 1.2038. A firmer pound tends to weigh on the top-flight index as around 70% of its constituents derive most of their earnings from overseas.

Neil Wilson, chief market analyst at Markets.com, said: "The Conservative Party has secured an historic mandate with a thumping victory, providing clarity for investors where there was confusion."

"For the markets and for business this is the perfect result - a clear majority for the Tories, the Corbyn risk nullified entirely, a major reduction in uncertainty around Brexit and even a quick Budget to inject the economy with some added impetus. The only doubts are around the next phase of Brexit -the future relationship - but with a large majority the government will be in a better place to negotiate and do what it needs to do."

Wilson pointed to some uncertainty over how a strong sterling will affect the market.

"However, one feels that once the big money starts flowing the FTSE 100 should be moving higher despite a clear drag from the stronger pound, which will cap gains. There ought to be a huge sigh of relief once the cash market opens and the City awakens to a Tory win. I think 8,000 looks overly bullish as a target, but something like 7700 before the year is out is doable. Near-term, 7440 offers a big test."

Sentiment was also set to be underpinned by reports that US President Donald Trump has 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.

"Does it mean we get a comprehensive deal in 2020? Hard to say, but it this has created the necessary Christmas cheer for a decent Santa Rally," Wilson said.

UK domestic stocks such as banks, housebuilders and financial services firms were likely to surge at the open on the back of the Tory win, with food retailers also set to gain amid an expected upturn in consumer confidence.

Unsurprisingly, there was a dearth of corporate news out, although Centamin did announce some board changes.

The gold miner said it had appointed chief financial officer Ross Jerrard as interim chief executive with immediate effect to replace Andrew Pardey, who has left the company.

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