Paul O’Connor, Head of the UK-based Multi-Asset team at Janus Henderson Investors, gives his market reaction to Boris Johnson’s appointment as the new Tory leader
“The market response has been fairly muted so far, which is not surprising given how widely anticipated this outcome was. The pervasive uncertainty surrounding Brexit has already taken its toll on UK assets and is now somewhat priced in. UK equities have seen sizeable outflows from global investors since the referendum vote in 2016 and speculative positioning in sterling is very negative. If we look to betting markets as a guide to consensus expectations, we see a no-deal Brexit is a one-in-three chance, with investor dread of this being somewhat offset by the view that there is still a one-in-four chance that Brexit is cancelled (Article 50 is revoked). The perceived likelihood of a 2019 general election has been growing in recent months, highlighting another layer of uncertainty surrounding the UK outlook and yet another reason for global investors to stay away.
Growth remains a key concern, with 2019 looking set to be the fourth consecutive year of sub-2% UK GDP growth. Confidence is deteriorating across the construction, manufacturing and services sector and among consumers as well. With the economy looking like it is one stumble away from recession, a policy response is needed. A 2019 interest rate cut seems increasingly likely and a Johnson fiscal stimulus a near certainty. While both of these can help cushion the impact of Brexit-related uncertainty on the economy, a full restoration of confidence seems unlikely until the big issue gets resolved.”
