Boris Johnson quits – How has the financial services sector reacted?

Following the announcement this morning that Boris Johnson has resigned as leader of the Conservative Party and his corresponding public statement made outside 10 Downing Street at lunchtime, the financial services industry has reacted to the news that Johnson would thus step down as Prime Minister. Johnson is expected to remain in office until a new leader of the Conservative party is appointed following the leadership race that much speculation is already underway for.

Mike Owens, Global Sales Trader at Saxo Markets, said: “We have seen the pound rise by around 0.5% on the news of Boris Johnson’s decision to step down as Prime Minister. Although mainly driven by the strong dollar, political uncertainty is another factor. less important that has pushed the pound lower in recent weeks are announced.

“Financial markets prefer certainty, and this situation is no different. We also see the FTSE 250 hitting session highs, although it’s a strong morning for European equities in general and hard to attribute much of the move to political headlines.

Chris Beauchamp, Chief Market Analyst at IG Group: “The pound has been looking for any excuse to bounce back against the dollar after its recent beating. Boris’s decision to leave removes at least some of the uncertainty and means a snap election is not on the cards. Longer term, the outlook is still bleak for the pound, so this rebound is unlikely to last.

James Bentley, Director of Online Financial Markets: “The rise in the value of the pound is a backhanded compliment for the regime that will take the place of the Johnson government. Confidence has deserted the Prime Minister and the market suggests that the sequel can only be better. The pound began to rise as soon as the Prime Minister indicated that he would finally leave office, but, as is so often the case, a small initial euphoria could give way to the more mundane, cold and harsh realities of the current economic malaise, which could leave some air out of the ball.

“Such a scenario would be if he was allowed to hang on in the interim until the Conservative Party conference. His critics would say he has done enough damage already and there won’t be a person alive who thinks he retains that kind of “good-out-going” status. The benefit of the doubt has long quit, even though he hasn’t.

Tim Graf, Head of EMEA Macro Strategy, State Street, comments on Boris Johnson’s resignation as PM: “Boris Johnson’s resignation does little to change the macro reality of the UK or the reality of the pound market, where the toxic mix of rising household costs, particularly domestic energy costs, and of slowing growth seems likely to test any future leader.

“Sterling may be better supported in the coming days with the removal of near-term political uncertainty, but I would view the rallies as selling opportunities given the prevailing economic malaise. The slowdown in growth should also serve as an excuse for the Bank of England to slow down plans to raise interest rates, further weighing on the pound. However, UK assets might not fare too badly.

“A less proactive MPC could make gilts more attractive as a result. And UK equities, especially large-cap multinationals, should be able to continue their better relative performance as we expect sterling weakness to continue.

Neil Birrell, Chief Investment Officer, Premier Miton Investors: “Troubles at the top of UK political parties and even at 10 Downing Street are becoming commonplace. The current situation regarding the head of government will only add further uncertainty to the UK’s economic outlook; this can only discourage investors, especially international ones, from committing capital to the UK, whether in the financial markets or at corporate level. Indeed, they could withdraw capital for fear of a change of regime. This is not good news for the pound.

“However, there are so many things to deal with; inflation, rising interest rates and slowing growth leading the pack, you might say “what difference does it make”? Good question, but uncertainty abounds and the more the worse. It is unlikely that in the short term the economy will be much impacted; the trend is fixed for the moment. But there are potential long-term ramifications and the markets will reflect them, for better or for worse, as the situation develops. However, valuations are low and already discounting a lot.

Laura Foll, UK equity portfolio manager at Janus Henderson Investors: “Political uncertainty tends to be most immediately reflected in the British pound, which has seen a slight depreciation since the start of the week. Longer term, the pound continues to trade significantly lower than it was before the Brexit vote in 2016, so any further weakening exacerbates pre-existing trends – for example, rising the price of imported goods, which puts additional upward pressure on inflation. (which is unnecessary given current levels of inflation).

“The level of the pound also has a different impact on different areas of the UK stock market – companies with substantial overseas earnings will see a positive conversion benefit, while some domestic companies that are dependent on buying Dollar inputs will see additional upward pressure on input costs.

“Apart from the effect on the pound, the political uncertainty comes at a time when sentiment towards UK equities is already poor – this is reflected in many cases in the valuations of UK companies lower than those of their counterparts. as well as in recent weak net flow data for UK equities. Events this week, while this overhang in UK equities is unlikely to be resolved in the very short term, could mean that a Once a new leader is established, the perceived additional political risk associated with UK equities is, to some extent, removed.This “climbs” the political uncertainty that has been part of the excess on UK equities .

“It is too early to speculate on what the next leader will do on policy. They will, however, face the same constraints as previous leaders, i.e. they will try to find a balance between putting public finances back on a more sustainable path and responding to a number of short- and long-term pressures term to increase spending.

Giles Coghlan, Chief Analyst, HYCM said: “After a tumultuous few days in British politics and a series of high-profile resignations, news of Boris Johnson’s resignation could be good news for currency markets. Although there have been no structural changes in the UK economic backdrop to date, markets have seen the pound strengthen against the euro and the dollar, with gains for UK equities. This is likely based on the assumption that replacing Johnson could restore Tory party unity and provide the economy with some much-needed fiscal stimulus.

“Now the markets will be asking the question ‘after Boris, who?’ With Rishi Sunak, Dominic Raab and Penny Mordaunt leading the way at the moment, a clear replacement remains uncertain. slightly positive for the GBP in the short term, depending on who it is the longer term picture may be different.In terms of significant movements in the pound, the main risk of substantial falls in the pound would come from the outlook If the markets sense that a general election is imminent, this could send the GBP sharply lower due to the uncertainty.

“In any case, investors will be watching the markets closely over the next few days in the hope that the next Prime Minister will provide effective leadership as the economic backdrop remains bleak. Likewise, the Bank of England will take heed of the political instability in its decision-making, but it is unlikely to change its tactics to control inflation, given that the current situation is unlikely to lead to a public vote at this time.

Neil Birrell, Chief Investment Officer, Premier Miton Investors: “Troubles at the top of UK political parties and even at 10 Downing Street are becoming commonplace. The current situation regarding the head of government will only add further uncertainty to the UK’s economic outlook; this can only discourage investors, especially international ones, from committing capital to the UK, whether in the financial markets or at corporate level. Indeed, they could withdraw capital for fear of a change of regime. This is not good news for the pound.

“However, there are so many things to deal with; inflation, rising interest rates and slowing growth leading the pack, you might say “what difference does it make”? Good question, but uncertainty abounds and the more the worse. It is unlikely that in the short term the economy will be much impacted; the trend is fixed for the moment. But there are potential long-term ramifications and the markets will reflect them, for better or for worse, as the situation evolves. However, valuations are low and already discounting a lot.

More soon…