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Markets edge down as fears surface on size of Tory majority Markets edge down as fears surface on size of Tory majority
(about 2 hours later)
Markets were edgy as polling got underway for the election on Thursday, with traders believing a Conservative victory was the most likely outcome but growing increasingly cautious about the size of the majority.Markets were edgy as polling got underway for the election on Thursday, with traders believing a Conservative victory was the most likely outcome but growing increasingly cautious about the size of the majority.
The pound fell 0.11% to $1.2945 against the dollar as the London stock market closed, after earlier climbing to a two week high of $1.2977. Against the euro it added 0.23% to €1.1535. However, an index that measures sterling volatility surged to its highest level in a year in expectation of strong swings in the currency as results begin to come in. The pound fell 0.11% to $1.2945 against the dollar as the London stock market closed, after earlier climbing to a two-week high of $1.2977. Against the euro it added 0.23% to €1.1535. However, an index that measures sterling volatility surged to its highest level in a year in expectation of strong swings in the currency as results begin to come in.
The FTSE 100 fell 0.38% to 7449.98, as investors also digested the decision by the European Central Bank to rule out further interest rate cuts, and watched the US Senate testimony from ex-FBI director James Comey for any implications for the Trump administration.The FTSE 100 fell 0.38% to 7449.98, as investors also digested the decision by the European Central Bank to rule out further interest rate cuts, and watched the US Senate testimony from ex-FBI director James Comey for any implications for the Trump administration.
David Madden, market analyst at CMC Markets UK, said the FTSE 100 was down because dealers were concerned about the outcome of the UK general election: “If you take an average of the polls conducted, it points to a Conservative win but some investors have less confidence in the polls, in the wake of Brexit and President Trump.” David Madden, market analyst at CMC Markets UK, said the FTSE 100 was down because dealers were concerned about the outcome of the UK general election. “If you take an average of the polls conducted, it points to a Conservative win but some investors have less confidence in the polls, in the wake of Brexit and President Trump,” he said.
However, the pound and stock market are both expected to rise sharply if the Conservatives win a large majority.However, the pound and stock market are both expected to rise sharply if the Conservatives win a large majority.
David Cheetham, chief market analyst at XTB, said: “Sterling has moved off its highest levels of the year in recent week as polls have tightened, but the market is seemingly pricing in a victory for the Conservatives. This is not to say that there isn’t the potential for further sterling appreciation on a Tory victory, with a clear extension of their majority likely to see more gains ahead. However the outcome is far less certain than PM May would have hoped when she announced the snap election back in mid-April and a loss of her majority would come as a crushing blow to not only her party, but also to the pound.” David Cheetham, chief market analyst at XTB, said: “Sterling has moved off its highest levels of the year in recent weeks as polls have tightened, but the market is seemingly pricing in a victory for the Conservatives. This is not to say that there isn’t the potential for further sterling appreciation on a Tory victory, with a clear extension of their majority likely to see more gains ahead.
“However the outcome is far less certain than PM May would have hoped when she announced the snap election back in mid-April and a loss of her majority would come as a crushing blow to not only her party, but also to the pound.”
City analysts believe the pound would rise to at least $1.31 if Theresa May ends up with a bigger working majority than the current 17 seats.City analysts believe the pound would rise to at least $1.31 if Theresa May ends up with a bigger working majority than the current 17 seats.
But there is likely to be turbulence in the markets if the Tories fail to improve on this figure. Kathleen Brooks, research director at financial firm City Index, said that a slim majority would “arouse fears of a hard Brexit”.But there is likely to be turbulence in the markets if the Tories fail to improve on this figure. Kathleen Brooks, research director at financial firm City Index, said that a slim majority would “arouse fears of a hard Brexit”.
“This could spook sterling traders,” she said and suggested the pound could fall towards $1.25 – the level it was trading at before the election was called. A hung parliament just ahead of the start of Brexit negotiations could see sterling slump by around six cents to $1.23.“This could spook sterling traders,” she said and suggested the pound could fall towards $1.25 – the level it was trading at before the election was called. A hung parliament just ahead of the start of Brexit negotiations could see sterling slump by around six cents to $1.23.
Ipek Ozkardeskaya, senior market analyst at London Capital Group said a Labour victory would also send the pound lower: “An unexpected and sudden shift to the Labour party would change the Brexit dynamics completely and push the political environment in the UK to a total unknown. The pound could retreat below the 1.25 mark. Banks and financials could suffer the most in case of a Labour majority.” Ipek Ozkardeskaya, senior market analyst at London Capital Group, said a Labour victory would also send the pound lower: “An unexpected and sudden shift to the Labour party would change the Brexit dynamics completely and push the political environment in the UK to a total unknown. The pound could retreat below the $1.25 mark. Banks and financials could suffer the most in case of a Labour majority.”
But currency experts at Dutch bank ING were less negative on Jeremy Corbyn winning: “If a credible Labour-led coalition can be formed quickly, then we are likely to see markets price in greater odds of a softer Brexit deal and this could arguably help the pound recover from any initial sell-off. From the currency’s perspective, this channel is likely to outweigh any questions over Labour’s economic policies.” But currency experts at Dutch bank ING were less negative on Jeremy Corbyn winning: “If a credible Labour-led coalition can be formed quickly, then we are likely to see markets price in greater odds of a softer Brexit deal and this could arguably help the pound recover from any initial sell-off.
Marc Ostwald of ADM Investor Services said even if May ends up back in Number 10, she has a tough job ahead of her: “Even if a substantially larger majority is achieved, there is little doubt that it will make not an iota of difference to the EU’s stance on Brexit negotiations, though it will heighten the risk that both sides continue to talk at, rather than to each other, and end in a complete breakdown. “From the currency’s perspective, this channel is likely to outweigh any questions over Labour’s economic policies.”
Marc Ostwald of ADM Investor Services said even if May ends up back in No 10, she has a tough job ahead of her: “Even if a substantially larger majority is achieved, there is little doubt that it will make not an iota of difference to the EU’s stance on Brexit negotiations, though it will heighten the risk that both sides continue to talk at, rather than to each other, and end in a complete breakdown.
“There is also little doubt that the UK economy is now facing some significant headwinds, above all consumers that are facing higher inflation, weak wage growth and the pressures associated with a far too rapid pace of credit growth, the more so given an increasingly soggy housing market, above all in the populous south-east.”“There is also little doubt that the UK economy is now facing some significant headwinds, above all consumers that are facing higher inflation, weak wage growth and the pressures associated with a far too rapid pace of credit growth, the more so given an increasingly soggy housing market, above all in the populous south-east.”