U.K.-focused stocks are higher on optimism that Boris Johnson’s Conservative Party has a better chance of winning a majority in next month’s election after the Brexit Party said it wouldn’t fight them. But market strategists say it’s not over yet.
The market reaction to Monday’s announcement was “solid rather than spectacular,” Raymond James strategist Chris Bailey said by email, noting that the Brexit Party could still hurt the Conservatives by running in seats won by Jeremy Corbyn’s Labour Party last time around.
The domestic FTSE 250 benchmark has held gains of about 0.9% since Farage’s speech, while some stocks considered most-exposed to the U.K. economy jumped on the news. Lender Royal Bank of Scotland Group Plc and homebuilder Persimmon Plc rose 4% and 3.9% respectively on Monday.
“There is now a meaningful amount of optimism being priced in to U.K. assets, particularly sterling and the FTSE 250,” said David Holohan, head of equity strategy at Mediolanum. “That does raise the risk of a negative market development to any political curve balls which could still emerge in the coming days and weeks.”
Broadly speaking, it comes down to the pound. In mid-October the correlation between U.K. midcaps and the British currency reached its highest level since the Brexit referendum and has remained there since. Sterling, which jumped as much as 1% on Monday’s news, has now erased the majority of those gains.
Here’s what other strategists and investors had to say about the developments.
Aberdeen Standard Investments, Andrew Milligan
Global News 
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