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INSTANT VIEW-Johnson resigns as UK Prime Minister

Economy Jul 07, 2022 13:18
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2/2 © Reuters. British Prime Minister Boris Johnson walks at Downing Street, in London, Britain, July 6, 2022. REUTERS/John Sibley 2/2

LONDON (Reuters) - Scandal-ridden Boris Johnson announced on Thursday he would quit as British prime minister after he was abandoned by ministers and most of his Conservative lawmakers.

REACTION FROM FINANCIAL MARKETS:

News of Johnson's imminent resignation helped push the domestically focused FTSE 250 index to a one-week high as the pound strengthened. It was last up 0.8%. The FTSE 100 index eased slightly and was up 1%.

Against the U.S. dollar, the British pound rose to $1.1994, up 0.6% at the day's high, from $1.1938 before the news broke. It hit a March 2020 low of $1.1887 on Wednesday.

QUOTES:

STEFAN KOOPMAN, SENIOR MACRO STRATEGIST RABOBANK, UTRECHT

"Some of the sentiment we've seen in markets today is relief that some of the scandals of the past year will be behind us

"But this is mostly on hope because if you look forward it is unclear who will replace him (Johnson).

"The party is split between those that want a pragmatic approach to Brexit and relations with the EU, and another faction that wants to continue to pick fights with the EU and all this will be exposed in the leadership contest.

"So, sterling remains vulnerable. The growth outlook is not good and the Bank of England is constrained. I expect a recession in the next few quarters. The outlook doesn't look great and if there's also political uncertainty then that's not good for sterling."

STUART COLE, HEAD MACRO ECONOMIST, EQUITI CAPITAL:

"With a new administration set to be in place in the next few months, nobody yet knows who the Chancellor will be and what his/her approach will be to fiscal policy - will they tighten it, loosen it, will they be more concerned about winning back electoral support via tax cuts and giveaways rather than battling inflation etc."

"In a nutshell, the departure of Johnson has probably made things a whole lot more complicated for the BoE over the next few months as they decide how far to tighten monetary policy and at what speed."

GABIELE FOA, CO-PORTFOLIO MANAGER, ALGEBRIS INVESTMENTS:

“The changeover is a long-term positive for UK assets. A quick resolution to the political impasse would mean policy varying less and no additional fiscal stimulus over the next few months. Moreover, the chances of having greater clarity on Brexit policy and lower budget stress improve"

LAURA FOLL, UK EQUITIES PORTFOLIO MANAGER, JANUS HENDERSON:

"The political uncertainty comes at a time when sentiment towards UK equities is already poor – this can be seen reflected in lower UK company valuations in many cases than overseas peers as well as recent weak net flows data for UK equities. The events of this week, while unlikely to mean this overhang on UK equities is resolved in the very short term, could mean that once a new leader is established that the perceived additional political risk associated with UK equities is, to a degree, lifted."

TIM GRAF, HEAD OF EMEA MACRO STRATEGY, STATE STREET:

"Boris Johnson’s resignation does little to change the macroeconomic reality for the UK or the market reality for the pound, where the toxic mix of rising household costs, particularly domestic energy costs, and slowing growth look likely to test any future leader.

"Sterling could be better supported in the coming days with the removal of near-term political uncertainty, but I would see rallies as opportunities to sell given the prevailing economic malaise. Slowing growth should also be a pretext for the Bank of England to slow plans to raise interest rates, further weighing on the pound.

"However, UK assets might not fare too badly. A less proactive MPC could leave gilts more attractive as a consequence. And UK equities, particularly large-cap multinationals, should be able to continue their better relative performance given we expect the weakness of sterling to extend."

KIT JUCKES, MACRO STRATEGIST, SOCIETE GENERALE:

"The UK political soap opera doesn't matter much for sterling unless it opens a door to easier fiscal policy (sterling-positive) and allows a more constructive approach to trade relation."

SAVVAS SAVOURI, CHIEF ECONOMIST, TOSCAFUND ASSET MANAGEMENT, LONDON:

"As for the new regime performing an entirely new fiscal policy from the old, I would argue that any difference will be nuanced. A generous car scrappage scheme always certain; the cash handed over for clunkers more generous for British made brands, so driving the upsurge in UK auto-making, helping the levelling-up agenda. More generally I will repeat what I have stubbornly but confidently maintained – the UK economy will continue to defy its naysayers and deliver strong labour and property market performances."

COLIN ASHER, SENIOR ECONOMIST, MIZUHO, LONDON:

"It's hard to see sterling going much lower than here. There was a bit of a pop when he said he was going but first, most of it is already in the price in the wake of recent events. Second, this fight is about personality and probity rather than policy.

"The market assumption is that policy won't change significantly. I don't think the new guy will come in with massive tax cuts. There will be tinkering and even before this week people expected more fiscal relief in the autumn when bills go up. Probably we get looser fiscal policy but because the fight is not about policy, any expectations for policy change will be relatively modest in this environment."

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:

"It's normal when you see political chaos of this nature that it drags a currency down.

"For the sterling reaction, we're looking at three possible things. Firstly, this is the final phase in what's been an uncertain period, about who stays at number 10 or who is at number 10. Secondly it's possible we'll get a less confrontational set of negotiations with the EU on the Northern Ireland protocol, which reduces the risk of trade tensions between the EU and the UK, which is positive for sterling.

"Thirdly, with Boris Johnson no longer as prime minister, one could argue that the campaign for Scottish independence will take a bit of a knock, perhaps that's reduced the risk of a pro-Scottish independence vote if one is granted next Autumn."

INSTANT VIEW-Johnson resigns as UK Prime Minister
 

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Rc Smelly LAB Jul 07, 2022 11:21
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