Equity markets on both sides of the Atlantic surged higher during the final session of the week as a sweeping victory for the Conservatives under David Cameron and stronger data coming out of the US boosted investor sentiment. London’s blue chip index rallied 2% higher today with the upward charge led by utilities and financials as a second term for Mr Cameron saw the Conservatives win their first outright majority since 1992. Such was the magnitude of the results it prompted the resignation of Ed Miliband, Nick Clegg and Nigel Farage from Labour, the Liberal Democrats and UKIP respectively.
Sterling catapulted above 1.5520 against the dollar early on in the session, adding 1.82% against the greenback before clipping some of these early gains as it settled above 1.5400 towards the afternoon. The pound also experienced substantial upside against the euro, building on yesterday’s gains back above 1.3500 euros to the pound, adding almost 2.3% today, targeting levels towards 1.3840 before swinging back towards 1.3700 in the afternoon.
The run up to the election had seen investors pull out of both stocks and bonds as the outcome was far from certain. However, with the Conservatives victorious the focus will soon shift towards a referendum on leaving the European Union. A number of prominent business leaders have spoken out against the exit of Britain from the EU, citing the implications for competitiveness and trade. But for now the euphoria of a Tory win has lifted sentiment in the City as pent up demand ahead of the election returns to the market with renewed vigour.
Wall Street stocks were lifted higher by a rebounding labour market. Non-farm payrolls came in at 223K in April, slightly lower than the 228K expected by market participants but a return to form after last month’s revised figure of 85K. The unemployment rate fell 0.1% m/m to 5.4%, in line with expectations, as confidence in the labour market continued to improve, pushing both the S&P 500 and DJIA higher.