Election June 2017 motives

Posted by: Nicola Macdonald, on May 2, 2017.

“In April, May announces election in June”– tweet from Ivan the K 18/4/17.

To the polls!

It is debatable whether the population of Britain really wants this, but we are heading for an Election (the third in two years); With almost perfect comic timing, the IMF announced an upgrade to the UK growth forecast on the same day!

The immediate response was a fall in Sterling to $1.2515 followed by a sharp reversal to c.$1.29. Sterling has risen, as opinion polls suggest a Conservative majority of at least 90 seats (and possibly as much as 200).

Election June 2017 motives

It seems the UK markets are in for (another) period of uncertainty. What are the motives for going for an election, just in front of the nitty-gritty of Brexit negotiations? We can rule out altruistic motivations, concern “for the good of the country” etc, but it might seem to be the worst possible time for such an event.

The state of the opinion polls surely played a major role in the thought process. The economy has defied predictions of post-Brexit gloom, with consumers starting to feel more confident about the future, for the first time in a while. Meanwhile, the Labour party appears in total disarray, with many formerly safe Labour seats looking vulnerable- at the last count six MP’s have decided not to run for office, and that number could well rise before June. Both the Scottish Nationalists (and the Lib Dems) will presumably try to make this a re-run of the Brexit vote, but the Conservatives hold only one Scottish seat, so have little to lose up there, whilst the latter party has only an 11% poll rating, (and few can remember the Leader’s name, let alone what, if anything, he stands for).

One of the major battlegrounds will be on pensions, (particularly since the Old are much more likely to vote). The future of the “Triple Lock” and the State Pension Age will be important inputs into the final voting intention of large numbers of the “grey vote”; Labour has already committed to keeping it and will provide pension credits for those affected by the mooted rise in the age at which they can receive their pension- it is inconceivable that the Conservatives will not do the same (and the longer-term problem of how it is all paid for will be avoided again). But other thorny subjects, such as Employment Law, Auto-enrolment into

Company pensions are also now likely to be postponed, as politicians try to avoid anything at all controversial for at least 8 weeks.

Ultimately, however, it is all about Brexit. A resounding majority will provide May with her own mandate, strengthen her hand in negotiations and put the Scottish Nationalists (and other “Remainers”) firmly on the defensive. Of course, David Cameron thought it was worth a shot at a Referendum on his leadership too.

What are the market implications?

It is extremely early days, but so far the rise in the Pound has led to markets moving back to Smaller caps shares and away from the (overseas earning) FTSE 100 stocks. (The FTSE 350 has started to outperform the 100 Index for the first time since Brexit). Bonds have outperformed equities, as the rise in Sterling once again at least delays the prospect of a rate hike, if not ends it. At a sector level, the winners so far have been Consumer-related stocks, at the expense of the Basic Materials (miners). As the former imports much of their produce (think Tesco), this is no surprise. The Value/Growth battle rages on, with the former continuing to beat the latter (by only a small margin), though both are down for the month.

There will be many twists and turns ahead, and opinion polls have acquired a rather flaky reputation of late, so trying to invest on this basis is fraught with danger. Even if one gets the forecast right, there is no guarantee the markets will do what one expects and the experience of “timing” recent elections does not bode well for success; we shall wait it out, and suggest Investors do likewise.

Remorse can be both for buyers AND sellers.


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