Incisive market commentary from David Morrison

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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
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As if investors didn’t have enough geopolitical concerns to worry about, earlier today Theresa May called a snap General Election for 8th June. She now has to move for a change in legislation to hold an election before 2020. This is necessary since the five-year fixed term government act was brought into law in 2011 soon after the Tory/Lib Dem coalition government came into being. Labour has said they will vote tomorrow to remove the fixed term and so enable the election to proceed.

Latest polling suggests Tories have a lead of 21% over Labour and this could translate into a majority of around 100 - well above the current government majority of 17 seats. Theresa May is hoping to win a bigger majority, get a direct mandate to be Prime Minister from the electorate, proceed with a fresh manifesto, so not be bound up in Cameron/Osborne legacy and also avoid having to fight an election in 2020 which would be a distraction from Brexit negotiations

Now there may be a sizable section of the electorate who see this as an opportunity to try and overturn the outcome of last summer’s referendum on EU membership. But as things stand, the only “significant” party in favour of staying in the EU appears to be the Lib Dems. After all, we’ve just about reached the peak of Scottish Nationalism, the Greens only have one seat and Labour is all over the place when it comes to Europe.

We’re already experiencing an effect on investors’ portfolios with the FTSE100 down over 2% on the day. Now it’s fair to say that UK equities were already under pressure prior to Theresa May’s announcement, thanks to a sell-off in miners and energy companies on a pull-back in commodity prices. But UK multinationals sold off further as sterling shot higher. Investors will remember how UK multinationals soared last summer following the UK’s decision to leave the EU. The subsequent sell-off in sterling gave these companies a boost as cheaper sterling was seen as translating into higher overseas sales, and increased earnings once revenues were booked back into sterling. For now, the situation is reversing.

But the question is whether this trend of sterling strength will continue or not? Today’s move looks like a knee-jerk reaction to unexpected news, exacerbated by excessive short-side speculative positioning in sterling.  It is also worth noting that the FTSE250 (essentially a broader-based mid-cap index) is down just around 1%. This is because the companies here are more domestically focused and less dependent on currency moves. This fall is in line with moves across the rest of Europe.

But the first round of French Presidential Election takes place on Sunday. As things stand, this is a much bigger deal than the UK election. Less than a fortnight ago the conventional wisdom was that the far right, anti-EU candidate Marine Le Pen would win the first ballot but lose the second to the “moderate” left-winger Emmanuel Macron. But the situation has changed recently as the far-left contender Jean-Luc Melenchon has shot up in the polls. Even the establishment right of centre candidate Francois Fillon is still in the running despite fighting accusations of financial irregularities since last year. As things stand, these top four candidates are only separated by 4% in the polls. So while it’s most unlikely that any single candidate will get over 50% on Sunday and thereby win outright, it’s possible that Marine Le Pen and Jean-Luc Melenchon face each other in the final vote in May.

The disaster situation for the European Union would be if these two anti-establishment candidates went through to the second round as both are anti-Europe in their own ways. If this were to happen then we could expect the euro to tank as suddenly France, founder member of, and second biggest economy in the European Union faces the prospect of quitting the euro.


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Posted by David Morrison

Category: PM Bulletin

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