Pound jumps on expected Tory win; trade talk lifts shares
NEW YORK, NY – The British pound surged early Friday as exit polls indicated a resounding election victory for Prime Minister Boris Johnson's Conservative Party, as talk of a China-U.S. trade deal buoyed share prices in Asia.
The British pound strengthened to $1.3468 from $1.3385 late Thursday as projections showed the conservatives likely to win a solid majority of seats in Parliament. That would alleviate uncertainty by giving Johnson more political capital to push for the United Kingdom's departure from the 28-nation European Union by the end of January, according to a research note by Evercore analysts.
“This is the most positive near term outcome for markets,” Evercore analyst Krishna Guha wrote.
In Asia, Japan's Nikkei 225 index jumped 2.5% to 24,758.56 and Hong Kong's Hang Seng surged 2% to 27,542.92. The Shanghai Composite index advanced 1.2% to 2,951.73 and South Korea's Kospi climbed 1.4% to 2,167.25.
That followed new record highs for the S&P 500 and Nasdaq on Thursday after President Donald Trump said the U.S. was getting close to a “big deal” with China.
Traders were also encouraged by a Wall Street Journal report saying Washington has offered to slash existing tariffs and cancel new ones set to kick in on Sunday in exchange for more agricultural purchases and intellectual property protection.
“If we do see the tariffs removed, that's saying, ‘OK, China must be agreeing to things or we must be right there,'” said Ben Phillips, chief investment officer at EventShares. “That’s why the market is looking at tariffs as the bellwether to a trade deal.”
Markets have been quick to react to headlines and remarks out of the Trump administration about the 16-month trade war.
The S&P 500 climbed 0.9% to 3,168.57 and is up about 0.5% from its last all-time closing high on Nov. 27.
The Dow Jones Industrial Average rose 0.8% to 28,132.05, while the Nasdaq gained 0.7% to 8,717.32. The index, which is heavily weighted with technology stocks, is now up about 0.1% its record set on Nov. 27.
The Russell 2000 index of smaller company stocks climbed 0.8% to 1,644.81.
China’s Ministry of Commerce said Thursday that its negotiators were in “close communication” with their American counterparts ahead of the new round of tariffs. A spokesman gave no indication whether the trade talks were making progress.
But late Thursday, Myron Brilliant, head of international affairs for the U.S. Chamber of Commerce, confirmed that both sides were close to inking a modest trade deal that would suspend the new tariffs and reduce existing ones by an unspecified amount. In return, China would buy more U.S. farm products, increase American companies' access to the Chinese market and tighten protection for intellectual property rights, said Brilliant, who was briefed by both sides.
Uncertainty over trade has been the biggest wildcard for stocks this year, hurting manufacturing around the world and causing U.S. businesses to hold back on making investments. The saving grace for the U.S. economy has been a strong job market and consumer spending.
Speculation that the world’s two biggest economies could be close to reaching an interim “Phase 1” trade agreement spurred investors on Thursday to move money into technology, industrial and other stock sectors that tend to do well when the economy is growing.
“If we get a China trade deal, it’s probably going to catalyze another 12-plus months of growth in the U.S. and globally,” Phillips said.
Banks helped lead the gains as bond prices fell, sending yields higher. Bank of America rose 3.1%. Higher yields allow banks to charge more lucrative interest rates on mortgages and other loans. The yield on the 10-year Treasury jumped to 1.90% from 1.79% late Wednesday. That’s an unusually large increase and signals more confidence in economic growth.
Technology companies also made strong gains. The sector is one of the most sensitive to swings in trade because many of the companies rely on China for sales and supply chains. Cisco Systems climbed 3.1%.
Investors will get a look at new Commerce Department data Friday on U.S. retail sales in November. Economists expect retail sales rose last month. The measure gives more insight into consumer spending, which has been among the brighter spots in the economy helping to push growth.
Benchmark crude oil picked up 35 cents to $59.53 per barrel in electronic trading on the New York Mercantile Exchange. It rose 42 cents to settle at $59.18 a barrel on Thursday. Brent crude oil, the international standard, gained 50 cents to $64.70 a barrel.
The dollar rose to 109.60 Japanese yen from 109.32 yen on Thursday. The euro strengthened to $1.1176 from $1.1155.
AP Business Writers Alex Veiga and Damian J. Troise and AP Economics Writer Paul Wiseman contributed.
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