The market reacts to snap general election
UK Prime Minister, Theresa May, announced a snap election on the 18th of April 2017. The election, which will take place on June 8th, came as a surprise to many – not least because May herself had previously ruled out calling an early general election on several occasions, stating she believed it would lead to instability.
Now it is instability that she hopes to prevent; asking the country to give her a clear mandate when negotiating with Europe on the terms of Brexit.
Markets React To U-Turn
The pound dropped in expectation of the announcement, but after it was made soared to a six-month high against the dollar and it was also up against the Euro. For the first time since the EU referendum, the pound moved through its 200-day moving average. Deutsche Bank called the move a ‘game changer‘ for the pound and revised its sterling forecasts.
Reduced Uncertainty
Feeling in the city was that the election would reduce political uncertainty and reduce the likelihood of a ‘hard Brexit’. Pundits acknowledged that Mrs May had taken a gamble, but that if she pulled it off she would strengthen her hand in Brexit negotiations with the other EU member states.
Chancellor of the Exchequer, Phillip Hammond, chose to interpret the strengthening pound as proof of the confidence of the markets in a renewed Tory government with an increased mandate.
FTSE Stumbles
It wasn’t all good news, however, with the FTSE 100 having its worst day since the Brexit vote. This isn’t unusual; due to the high number of dollar earners in its constituents, it tends to react in the opposite way to the pound. The FTSE 100 dropped by 2.4%, taking $46 billion from the value of some of the UK’s largest corporations.
So, is now a good time to take advantage of low share prices to build your portfolio, or can we expect more uncertainty in June following the election result? Industry experts warn investors to consider the long-term rather than short-term reactions to particular pieces of news; however, those ‘uncertainty discounts’ on certain stocks may mean that a canny investor with money to spend could make some great decisions.