What’s next for UK markets after huge Conservative Party win?

December 17, 2019 10:30

Both the British pound and UK stock market surged higher in the early hours of Friday 13th December, after the Conservative Party - led by Boris Johnson - won the UK general election. The party secured a working-majority in government meaning it is now much easier for them to pass through legislation. So what does this mean for UK markets going forward? Let's find out!

The UK election, Brexit and the markets

One of the key slogans of Boris Johnson's campaign was to get Brexit done. Currently, the deadline - which has already been extended - is on 31 January 2020. This is the day the UK is due to leave the EU. It's also unlikely to be delayed after being such a core component of the Conservative Party campaign and the fact that the government has secured a working-majority in the Houses of Parliament, after beating opposition parties such as Jeremy Corbyn's Labour Party.

This level of clarity, and certainty, has helped investors pile into UK assets with the British pound and UK stock market surging higher. The first test of the new government will be when Johnson puts forward the withdrawal agreement bill to Parliament, once he reshuffles his cabinet.

Analysts are still relatively mixed on their long-term outlook for both the British pound and the UK stock market. On the bullish side, senior economist at Berenberg, Kallum Pickering, says a clear victory for Johnson should mean a "boost for the UK economy." This is after the government plans to end the tightening they implemented after the global financial crisis by spending on new investment projects.

However, some analysts still point out that the future relationship between the UK and the European Union is still uncertain with no trade deal yet agreed. In a note to clients, Paul Meggyesi, head of global foreign exchange strategy at JP Morgan, stated: "it seems to us that the market is in danger of conflating the removal of political uncertainty with the reversal of the economic impact of Brexit."

All eyes are on the Brexit 'transition period'

After Brexit happens on 31 January 2020, as it is expected to, this begins the transition period in which the UK government and the EU have just 11 months to come up with a trade deal and provide details on the what the future trading relationship will be like. Boris Johnson has already stated that the transition period will not be extended. The EU has also stated that if the UK did want to extend the transition period they would need to continue to pay budget payments beyond 2020 and that this has to be decided by June 2020.

The hard work is just beginning it seems. As investment bank Citi points out: "We envisage no-deal risk 2.0 / a WTO exit rising in H2, 2020. For the last 3.5 years, the UK government has been negotiating what happens after Brexit during the transition period. Should the UK be able to leave the EU on January 31, 2020 as we expect, Brexit negotiations then move onto an even more complicated stage – deciding the future relationship between the EU and UK after the transition period. Given the complicated and long relationship between the UK and EU, this spans everything from trade to defence and data protection. It is difficult to overstate what a mammoth task this is."

While there is still some uncertainty regarding the long-term situation, the volatility in the short-term provides some unique and interesting trading opportunities.

What's next for the British pound?

The long-term weekly chart of the British pound against the US dollar (GBP.USD), shows how volatile the trend has been since the Brexit vote in 2016:

Source: Admiral Markets MetaTrader 5, GBPUSD, Weekly - Data range: from 19 August 2012 to 16 December 2019, accessed on 16 December 2019 at 2:41 pm GMT. Please note: Past performance is not a reliable indicator of future results.


With Admiral Markets you can speculate on the price direction of a currency pair like GBP.USD by using a CFD (Contract for Difference) which allows traders to go long and short on the market. You can learn more in the article 'How to trade the GBP/USD.'

It's clear to see the most recent rally higher in the currency pair with price breaking to a new 2019 high after the election announcement. However, the exchange rate price is still some way off the levels seen before the Brexit referendum in 2016. In the long-term, this will act as a potential target area if the pound can continue its push higher.

In the short-term to medium-term trading time horizon, traders may consider identifying possible opportunities on the daily chart, as shown below:

Source: Admiral Markets MetaTrader 5, GBPUSD, Daily - Data range: from 22 March 2019 to 16 December 2019, accessed on 16 December 2019 at 3:41 pm GMT. Please note: Past performance is not a reliable indicator of future results.


In the above daily chart of the GBP.USD exchange rate, a blue 20-period exponential moving average is shown. Moving averages help traders quickly identify the trend of the market, as well as areas of support and resistance where price may turn.

In the chart above, it is clear to see that during the moves lower in the exchange rate, the price stayed below the 20-period moving average. During the moves higher, the price tended to stay above the moving average. As the price is currently above the moving average traders may still continue to trade to the upside but wait for price to fall lower to better risk to reward trading levels.

To help find the right time to execute a possible trade, traders may use technical indicators or price action trading patterns.

What's next for the FTSE 100?

As with the GBP.USD chart above, the FTSE 100 has shown periods of volatility since the Brexit referendum. However, the volatility has been much less and has been contained to produce a long-term uptrend, as the chart below shows:

Source: Admiral Markets MetaTrader 5, FTSE 100, Monthly - Data range: from 1 June 2005 to 16 December 2019, accessed on 16 December 2019 at 4:41 pm GMT. Please note: Past performance is not a reliable indicator of future results.


The FTSE 100 stock market index consists of the largest 100 publicly listed companies on the London Stock Exchange by market value. With Admiral Markets you can trade stock market indices like the FTSE 100 by using a CFD (Contract for Difference) which allows traders to go long and short on the market. You can learn more about stock market investing in the article 'How to start investing in stock markets.'

In the chart above of the FTSE 100, the price has recently bounced off long-term support levels called trend lines which are shown by the ascending black lines on the chart. While these lines have kept buyers in the market, over the long-term, it is important to note that this is a monthly chart. As such, there are times of significant decline when viewing the lower timeframes.

However, investors will not only be encouraged by price recently bouncing higher from these support lines but also by the fact that UK companies are, arguably, better prepared to deal with the possibility of a no-deal Brexit scenario. A further rally higher could also be fuelled by any declines in the British pound. This is due to the fact UK assets become cheaper for foreign buyers but also because of the fact that many UK companies earn most of their revenues internationally.

Conclusion

There are some interesting short-term and long-term trading opportunities presenting themselves across UK markets right now. One of the best ways to prepare yourself to trade multiple asset classes is to have access to the best trading products available to you. For example, did you know Admiral Markets provides a supercharged version of the MetaTrader 5 trading platform called MetaTrader Supreme Edition?

This provides traders with additional trading features such as the correlation matrix, Admiral Pivot, a mini-terminal for quick and advanced order functionality and access to automated analytical tools, pattern recognition software and trading signals from Trading Central!

You can learn more in the article 'How to trade with Trading Central', as well as start your MetaTrader Supreme Edition download completely free by clicking the banner below:

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