Financial firms warm to idea of early election

    Pam Beith

    THE announcement by Theresa May that she will, after months of denial, now be calling a snap general election took almost everybody by surprise. In the world of finance, where many millions of trades are conducted each second, political statements of such magnitude have an instant affect on market sentiment, for better or worse. The Times has sought the opinions of what it all means from some of Tunbridge Wells’ key financial players who combined, advise on, oversee the management of, or actively trade hundreds of millions of pounds of assets between them.

    Craig Strong: Director of Capital Currencies

    The pound has emerged the immediate ‘winner’ against a basket of currencies following Theresa May’s surprise snap general election called for 8th June. There was always a possibility that this could happen following Article 50 being triggered but was always denied.

    GBP/USD soared to almost 1.29 (up 4 cents) with GBP/EUR closely following suit and neared 1.20 after an initial sterling sell off following rumours that the Prime Minister was to resign. The markets now seem to be backing the Prime Minister who appears to be strengthening her leadership position with the UK going into post Brexit negotiations. This is a turnaround from last year, following a massive selling of the pound following the referendum result.

    General elections as a whole create much uncertainty and this in turn leads to market volatility. We’ve seen the FTSE 100 extend losses on the back of the pound’s strength (the FTSE 100 tends to be inversely correlated to the pound in any case).

    So what does this mean for sterling and exchange rates? Analysts were predicting GBP/USD above 1.30 and with a slight selling off by a cent as I write, we are only two cents away and this seems Craig Strong Capital Currenciesperfectly feasible and easily achievable. Theresa May looks poised on paper to wipe the slate clean from the Cameron administration and re-build the government into a position of strength and resolve. If this happens and it will depend on what degree it or indeed if it happens, sterling may well rally again across numerous currencies including the euro and the dollar.

    However, the outcome is all but clear as geopolitical events closer to home with the French election and Scottish independence loom, as well as President Trump, further afield destabilising the dollar with heightened military tensions with North Korea.

    History suggests that the market prefers a win for the incumbent Prime Minister. However, with recent opinion polls and their ‘shady record’ you wouldn’t bet your house on it!

     

    Pam Beith

    Pam Beith: Head of Brooks MacDonald in Tunbridge Wells

    LAST week’s announcement demonstrates the high level of confidence the Prime Minister has in her government’s standing and, arguably, its lack of strong opposition. Indeed, it is understandable why she would seek to hold a general election now, as polls currently show the Conservative Party holding a significant lead over Labour, the Liberal Democrats and the Scottish National Party.

    Once it was announced that the Prime Minister would hold a press conference sterling sold off, as it was both unexpected and there were no details about the content ahead of time. However, a general election was confirmed, the currency bounced back and is now trading at new monthly highs. In our view, this reflects the fact that an improved Conservative majority would strengthen the party’s negotiating position against the EU. Sterling’s rally should be put in the context of the currency trading at depressed levels following last June’s referendum.

    Near term, we expect the forthcoming general election to weigh on investor sentiment, as it will create further uncertainty. This is evident in the fact that UK gilt yields have continued their downtrend, reaching new 2017 lows. The government has consistently pushed back against revealing too much about its negotiating position with the EU in advance and, as a result, its plans are largely unknown at present. However, during the campaigning process the various UK political parties may be forced to reveal their plans in regard of the UK’s secession. As a result, we may learn some of the areas that the government wishes to focus on and others which it sees as ‘red lines’.

    If the government’s manifesto seeks to dominate the middle ground and leads the market to believe it is seeking a ‘soft’ Brexit, this may give further buoyancy to sterling. However, as we have seen since the last June’s referendum, any sterling strength is likely to be negative for the FTSE 100 Index, given it is skew towards international earnings, and vice versa for sterling weakness.

    Ultimately, we see potential for the election to be a significant positive for the UK in the medium term, as the victorious party is likely to hold greater authority when proposing and implementing their policies, whether this be in regard to Brexit negotiations or otherwise.

     

    Gary Jefferies: Managing Director of Panoramic Wealth Management

    Gary Jefferies

    Irrespective of personal political belief or Brexit choice Teresa May’s calling snap 8th June election would seem well timed. There would appear to be consensus that having now trigged Article 50 that a stable government with a predicted suitable majority would more likely to be able to deliver favourable Brexit.

    Margaret Thatcher actually won her last two elections on the second Thursday in June. Party Losers in this election are likely to see a new leader

    The immediate stock market reaction of the announcement on the day saw a 2.5% reduction of the FTSE. Primarily this was down to the Sterling increase on the day. In turn this impacts Larger UK companies valuations that earn most of the earnings overseas and become less competitive under such circumstances. From an investment view stability is preferred so post-election over time could well see the market recover.

    Given the Brexit position coupled with a fragile economy one aspect that could be deferred via a manifesto is the next stage of increases Workplace pensions from April next year.  Contributions for employers are set to double and treble for employees and would take out a significant level of monies out the monetary system.

    “Interestingly the proposed increase for probate fees which was due to be introduced this May has been scrapped. This had attracted negative attention and would have meant some estates would have seen a fee increase from £215.00 Up to £20,000.”

    Longer term with Sterling weakened there is a danger that household find themselves squeezed though this will not be altered by the election. This is due to higher import prices coupled with general wage increases falling behind inflation.