In what has otherwise been a fairly quiet news week, focus today remains on UK politics and the potential effects of an early general election, as well as news that George Osborne will be quitting Parliament to focus on his new roles at the Evening Standard and Blackrock. At the time of writing sterling has remained strong, and at 1.2850 against the dollar is near 200-day highs. This has taken its toll on the FTSE 100, which at below 7,150 is -2.5% off the pre snap-election announcement. Earlier today in Parliament a majority of 522 against 13 passed the motion for a general election on the 8th June, and odds of Conservatives winning most seats are 1/12 on reflecting the 21 point lead the Tories have in the latest polls.
In terms of seat projections, Politico is anticipating the Conservatives stealing around 70 seats from Labour, on aggregate. This would give them 400 of 650 seats equating to a 150 seat majority (compared to the slim 12 seat majority presently). Clearly, the markets agree with Prime Minister Theresa May that this should help strengthen and unify the UK’s Brexit negotiating position. Importantly such an increased majority would weaken the position of some of the more bellicose ‘Leavers’ in the Conservative party - who might otherwise levy outsized influence on the withdrawal of the UK from the EU. If May gets her wish, which despite the large margin in projections remains far from certain, her less coerced position to direct negotiations is expected to strengthen her hand in Brussels and be less prone to a hardliner approach just for the sake of it. Elections season in Europe is about to get even busier; hopefully the announcement of the snap elections will be the only surprise and not the result itself.
Meanwhile, let’s not forget the impending first round of the French presidential elections takes place this Sunday. Markets are a little on-edge in another ‘too-close-to-call’ race which have had a recent tendency to flout expectations. For markets, the greatest upset would likely come from a Le Pen / Melenchon stand-off winning passage to the run-off election on the 7th May. Recent polls have seen Macron’s (On the Move!) edge against Le Pen (National Front) narrow, and Melenchon (France Unbowed) stealing support from Hamon (Socialist Party) to tie with Fillon (Republicans). With all four parties hovering closely around 20% in the polls, with only 4% between them, this focus on UK politics is likely to be short-lived. Political uncertainty remains high in Europe; and if Macron and Fillon somehow both fall at the penultimate hurdle this Sunday, markets will have to adjust to the prospects of either a Le Pen or a Melenchon at the heart of not just French politics but the EU also.