Boris is conformed, what next for sterling?

 Boris confirmed as leader of the Conservative party and takes over from Theresa May as Prime Minister of the UK. Sterling initially rallied on the news only to slip back again. Could sterling rally from here? Sterling is close to the level it reached post the announcement the Brexiteers had won the day in 2016, also the level sterling recovered from late last year. That probably means nothing except that in the past the speculators have seen that as a turning point. As the warning goes, past performance is no guarantee of the future.

We now have new sets of negotiators on both sides of the debate, as Theresa May departs the scene. Both parties must maintain a hard line, but maybe they also see the need for clarity. The eurozone economy is struggling in a similar way to the UK currently, some path forward may restore further confidence. Boris is likely to try and gain some unity and to do that he will try to soften the no-deal Brexit line, but maintain it as an option for negotiation. A deal and Brexit by the end of October looks unlikely but should both sides try to come to some solution. Sterling may recover.

Equity markets took the confirmation of Boris approval well, the FTSE 100 rallying over 1%. Boris has suggested he will look to ease the fiscal burden on corporates and individuals alike. The market’s reaction may be in part, response to that hope.

Global stocks seem to remain on the front foot, as monetary policy and earnings season are no worse, and so far, overall maybe a tad better than expected, continues to support sentiment. The increased tensions with Iran having little impact.  The price of Brent crude has rallied but remains down on the month and from a year ago.

Leading equity indexes climb higher as investors look for “relatively safe equity havens” in the absence of obvious choices from other asset classes. The Russell 2000 index of smaller cap companies has now lagged the broader index by 15% since the sell-off from last year. Despite the recent improvement in some of the US economic data, according to Oxford economics, there is still a 50 pct chance of a recession in the US within the next six months. On previous occasions, the possibility has become a reality. Equity markets are forward-looking, so it is said, they are looking forward to the Fed cutting next week it would appear. On Thursday, we hear how dovish the ECB is becoming once again.

Posted on July 23, 2019 .