By Carla Mozee, MarketWatch
Pound taps $1.55, but 'Brexit' risk remains
U.K. stocks and the British pound rallied Friday, with financial
markets cheering election results showing David Cameron's
Conservative Party will remain in power in the U.K. parliament.
The U.K.'s FTSE 100 jumped 2.3% to close at 7,046.82. The
benchmark finished with a weekly gain of 0.9%.
The Conservative Party won an effective majority after
Thursday's general election, confounding opinion polls that for
months suggested the race between the Conservatives and the Labour
Party would be too close to call.
Read: Cameron will run an increasingly Divided Kingdom
(http://www.marketwatch.com/story/cameron-will-rule-an-increasingly-divided-kingdom-2015-05-08)
"For the best part of 12 months ... transports, utilities,
banking and house builders have been weighed down by concerns that
the Labour Party's manifesto promises would kill investment
incentives as well as threaten dividends for the companies in
question," said Michael Hewson, chief market analyst, at CMC
Markets UK, in a note Friday.
The "realization that none of these measures will come to pass
has seen the market rebound like a coiled spring," he said.
Shares in Centrica PLC , the parent company of British Gas,
climbed 8.1%. "While we think some of the fears around Labour were
overstated and obviously [a U.K. regulatory] review is still
ongoing, Centrica in particular was seen as a way of expressing a
view on a potential Labour victory," said BNP Paribas in a
note.
Bank major Lloyds Banking Group PLC (LYG) gained 5.8%. Babcock
International Group PLC , an engineering-services company, surged
9.4%, and home builder Taylor Wimpey PLC gained 5.8%.
In the fixed-income market, bond prices rose, pushing the yield
on the 10-year U.K. Gilt down 6.3 basis points to 1.876%, according
to electronic trading platform Tradeweb.
Sterling: The pound (GBPUSD) climbed to $1.5454, from $1.5249
ahead of Thursday's election. It pared gains intraday Friday after
the release of U.S. April jobs data
(http://www.marketwatch.com/story/us-jobs-creation-springs-back-in-april-with-223000-gain-2015-05-08-9103014),
but then bounced back. Overnight, sterling hit as high as $1.5523,
after a BBC exit poll put the Conservatives in the lead by a
surprisingly large margin.
"The Conservatives are seen as being more business friendly and
more importantly, offer continuity in a country that last year
experienced the fastest rate of growth," among the Group of Seven
advanced economies, said Craig Erlam, senior market analyst at
Oanda, in a note early Friday.
While sterling saw "unexpected bullish momentum," the gains are
at risk of fading, wrote Jameel Ahmad, chief market analyst at
FXTM. A downward move "will be due to an admission from investors
that it is only going to be a matter of time before attention
shifts and questions over a possible 'Brexit', or increased
potential for another Scottish referendum need to be answered."
The Conservatives have promised to hold an in-or-out referendum
on a U.K. exit from the European Union -- or "Brexit" -- by 2017.
Meanwhile, the Scottish National Party spearheaded last year's vote
on whether Scotland should break away from the U.K. The SNP secured
a historic landslide election victory in Scotland, winning 56 out
of 59 seats.
European Commission President Jean-Claude Junker plans to meet
Cameron "soon"
(http://www.marketwatch.com/story/eu-chief-to-meet-uks-cameron-soon-to-discuss-reform-demands-2015-05-08)
to discuss proposals for reforms of the EU.
Read: U.K. election removes one risk, but another lies ahead
(http://www.marketwatch.com/story/uk-election-removes-one-risk-but-another-lies-ahead-analysts-react-2015-05-08)
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