FTSE 100 sheds its 2017 gains and pound weakens as poll fever grips markets - as it happened

Graeme Wearden

from on 2017-04-19 19:39 (#2KJDW)

Britain's blue-chip stock index has fallen for the second day running, and sterling is dipping too

5.18pm BST

British businesses have lived through some turbulent times recently (like the rest of us....).

So a snap election probably won't cause as much disruption as the shock EU referendum vote.

"Brexit brought about a significant pause in deal making. However, yesterday's announcement of a snap election seems less likely to have the same impact on deals and financial activity, as many of the polls believe May will boost her majority, and this will give her a stronger hand in Brexit negotiations, with fewer factions to please."

"However, we're living in uncertain times and if anything changes between now and the 8 June, we still may see a slowdown in activity. The starting gun has only just been fired. Ultimately, uncertainty is becoming the new normal and the markets are just getting on with it. To a large degree, this latest round of 'uncertainty' is just a different shade of the same."

5.12pm BST

The pound is coming under some late pressure tonight.

After a steady day, sterling is now down almost half a cent against the US dollar at $1.2795, having hit a six-month high last night.

The market still remains in a negative mindset for sterling with short positions still elevated.

"It isn't quite the one-way street that a lot of people have painted over the last 20 hours.

With a 20-point lead off the starting blocs, I would have thought the risk is more that it will narrow than grow. A positive surprise from the French election would also presumably see a squeeze higher in the euro after the weekend."

4.53pm BST

BREAKING! Edginess over the UK snap general election has sent the FTSE 100 index deeper into the red, wiping out all its gains so far this year.

The blue-chip index has just closed for the night, down 33 points at 7114 points.

The FTSE has suffered a somewhat disappointing end to Wednesday's trade, as early gains were eroded in the wake of the vote to dissolve parliament ahead of a snap General Election in seven weeks' time.

After yesterday's dramatic crash for the FTSE, today has been more about stability as traders seek to ascertain whether such a dramatic selloff is really justified ahead of what looks likely to be a landslide for the Conservatives.

4.33pm BST

Here's another chart showing how the FTSE 250 has caught up with the FTSE 100, after suffering much heavier losses immediately after the EU referendum:

Remember that big gap between the performance of the FTSE 100 and the FTSE 250? Well... https://t.co/E0oDhNwES3 pic.twitter.com/QpzadFe1qR

4.26pm BST

Back in parliament Sajid Javid, the secretary of state for Communities and Local Government, has been answering questions about Britain's housing problem.

My colleague Julia Kollewe has the key points:

Sajid Javid:broken housing market:'for many people it's not really within their reach to buy or rent what they would consider a decent home'

Sajid Javid: in last 20 years in England 150,000 homes built a year vs 225,000-275,000 a year needed to keep up with household growth

Communities secretary Sajid Javid: government determined to tackle practice of selling houses on leasehold basis 'for no good reason'

Communities secretary Sajid Javid: 'We do need to do more to have more diversity and that means more small builders' #housingwhitepaper

Sajid Javid says the issue of foreign buyers leaving homes empty is a much smaller issue than people think

The consultation on the ban on letting agents fees will continue through the election purdah period, Javid says

4.10pm BST

Bloomberg has spotted that the FTSE 250 index of medium-sized companies has been outperforming the larger FTSE 100 for several weeks, and by more than ever before.

The white line on this chart shows how the gap between the two indices has risen (a higher number means the 250 has extended its lead).

U.K. midcaps back in the spotlight beating FTSE 100 by most ever https://t.co/rAgJ46vdNl via @alekswrites pic.twitter.com/fAb6xhtQ6I

3.21pm BST

There's a general feeling in the City that Theresa May will get a larger majority on June 8, and this will strengthen her hand in the battles ahead with Brussels.

That's why the pound jumped so high yesterday, and had held those gains today.

Questions should be raised over the sustainability of the current Sterling rally, especially when considering how political uncertainties and Brexit woes remain current. Investors are still pondering over the economic future of the United Kingdom after Brexit, with questions still being raised about whether the two-year timeframe will be enough to secure a deal. Although the European Union has stated that they will not punish Britain during negotiations, the thought of the EU making an example out of Britain to prevent others from leaving the bloc does linger in the background.

Evidently, investors are hopeful that the UK Prime Minister will have a stronger mandate to secure the UK's EU exit from the EU as she will be able to push back hard deadlines for a trade deal until the next election in 2022, assuming she wins this one. But that is the hope, in reality things might turn out differently, as US investors are starting to find out with regards to Donald Trump. Clearly, Brexit-related uncertainty will remain in place for a while yet.

2.48pm BST

It's official! Britain is heading back to the ballot box in June.

522 MPs have voted in favour of a snap general election, comfortably more than was needed.

2.33pm BST

Over in parliament, MPs are now voting on whether to hold a general election on June 8th.

Theresa May needs a two-thirds majority, under the Fixed Term Parliament Act - which should be a breeze as most opposition MPs have said they'll support the PM's plan.

MPs voting now on government's motion calling a general election for 8 June. May needs 2/3 majority to overturn fixed term parliament act.

1.49pm BST

Just in: The International Monetary Fund has warned that the global economy could be threatened by Brexit uncertainty.

"Uncertainty about the negotiation outcome is pushing banks to anticipate Brexit-related costs.

Banks have started preparing for a worst-case scenario, in which no agreement is reached, to avoid any possible disruption to their services. Duplication of some activities and business structures in different locations seems inevitable and represents an extra cost. Operating in different regulatory regimes will also increase the burden on banks.

1.31pm BST

Despite this week's losses, the FTSE 100 is still up over 12% since last June's referendum.

However, it's NOT as simple as that, because the index is priced in sterling (so a weaker pound pushed up share prices).

And here's the percentage change in the FTSE 100 in both GBP and USD terms since the #EUref pic.twitter.com/wsvBx3CjrU

1.24pm BST

The FTSE 100 is continuing to slide, adding to yesterday's 2.5% tumble.

The blue-chip index is now down 25 points at 7122, its lowest point since 2nd February, and putting it deeper into the red for 2017.

1.06pm BST

Analysts at RBC Capital Markets are predicting that the Liberal Democratic party will gain seats on June 8th.

The recent opinion polls suggest a strong lead of the Conservative party over the biggest opposition party, Labour. The latest set of polls indicates that there will be a 19% lead in the popular vote. This would almost certainly increase the number of seats in the House of Commons from the current 17 to a much more sizeable majority.

Nonetheless, a lot can change between now and June 8 and it seems likely that the Liberal Democrats will be able to increase their number of MPs from the current setting as they are the only party openly campaigning on a pro-European tickets. In this respect heightened volatility in UK assets as we approach the election.

12.20pm BST

After a calm morning, the pound has held onto Tuesday's strong gains.

Through May's snap election, she at last has the opportunity to take full control of the Brexit process and minimise the political uncertainty which has beset her tenure that had several implications for the currency.

Once again, the narrative of sterling has changed from one of uncertainty and volatility in the days following the referendum, to the relative stability of a defined negotiation period following the triggering of Article 50, and now to the possibility of renewed strength as the prospect of 'soft' Brexit and a more coherent negotiating position from the UK's government becomes a possibility.

11.19am BST

Morgan Stanley has predicted that the snap general election means Britain is almost certain to leave the single market.

But it also reduces the risk of a disorderly Brexit (assuming the polls are right, and the Conservatives win a larger majority).

Why it virtually rules out staying in the single market: On Brexit, we expect the "sovereignty" red lines on UK control over borders, courts and laws, which were set out in the Lancaster House speech, to be put into the Conservative manifesto, effectively ruling out a Remain or EEA outcome. A Conservative government would then imply leaving the single market: either a WTO-like outcome where the UK re-establishes national control but at the cost of economic barriers with the EU, or a "clean Brexit" FTA outcome where the UK re-establishes national control while avoiding major barriers to business with the EU.

Why it reduces the risk of a disorderly Brexit: In the base case the UK government would have the Parliamentary majority to push through difficult decisions to seal a deal. In addition, the next Parliament should have time to complete Brexit negotiations before the next scheduled UK election in June 2022.

11.03am BST

Back in the markets, Britain's medium-sized companies, are bouncing back from yesterday's selloff.

The FTSE 250 index, which is packed with UK mid-cap firms, has now jumped by 1% today to 19,491 points.

As the shock fades from the election announcement, there is a real possibility of a rebound in UK stocks, since yesterday's fall provided the kind of dip that bargain hunters have been praying for over the past few weeks.....

Signs of weakness in the US market will give cause for concern, but overall it still looks like a strong update that points to more growth further down the line.

10.45am BST

Many British firms will welcome the June election, as it should provide a little more certainty about the future.

So argues Karen Briggs, Head of Brexit (great job title!) at KPMG, who says:

"UK PLC understands the Brexit journey will be a bumpy one. We are getting used to a new normal where political shocks are commonplace, foreign exchange shifts dramatic and the UK's labour supply in transition.

"Businesses desperately want to make a success of Brexit but their fear has long been that the sheer scale of the negotiations mean they cannot be completed in two years. This might mean vital details in everything from finance, to life sciences and aviation being missed or delayed - upending business models and affecting jobs.

10.29am BST

City traders have another market to watch....and this one shows Theresa May winning a majority of around 100 seats on June 8th , up from just 17 today.

IG launches #UKGE2017 seat markets, forecasting a Tory majority of 100 #Brexit #Conservative 375#Labour 175#LibDem 30#SNP 50
RO pic.twitter.com/9ea9Ejv7aD

10.19am BST

Newsflash from Brussels: Eurozone inflation fell to 1.5% in March, down from 2% in February.

That's mainly due to Easter falling in April, and matches the earlier 'flash' reading.

Euro area annual inflation confirmed at 1.5% in March 2017 (February 2.0%) #Eurostat https://t.co/vqVlXpR5ub pic.twitter.com/8i6w25vlig

10.01am BST

Kathleen Brooks of City Index believes the UK pound will keep rallying against the US dollar as the British election campaign picks up.

The pound might even hit $1.35 (from $1.28 today), she argues, if the Conservatives look likely to win a large majority.

In and of itself the UK election shouldn't be a key driver of UK asset prices, particularly if Theresa May wins a landslide, as she is expected to do. This election shouldn't change domestic policy too much, and Brexit was going to happen with or without the vote on June 8th. However, if the polls are to be believed about the Tory lead over Labour then this election could add certainty to the UK's Brexit positioning stance and to domestic policy for the next 5 years, and that is good for markets.

For GBP/USD 1.30 is now in view, and as we lead up to the election then we could see more unwinding of the GBP/USD short positions which could take us to 1.35 around the time of the election result.

The sharp jump in the pound yesterday against a number of currencies, including the US dollar, was an acknowledgment that the snap election is likely to lead to more political certainty, given the Conservative Party's lead in the polls.

There would be far more downside risk for the Prime Minister if she had waited another 12 months before acting, but by deciding to hold an election on June 8^th - with the sentiment in the UK still in favour of Brexit - it means the Tories will be able to cement their position and allow the PM to get the political support needed to follow her agenda. The move has also given the opposition little room to prepare, and call for, an alternative to Brexit, or a watered-down version of it.

The market dislikes uncertainty.

Investors had already been a little on edge over the French presidential election, and now the UK general election is creating further uncertainty in Europe.

9.47am BST

Here's a list of the leading risers and fallers on the FTSE 100 this morning.

9.37am BST

One of the MPs who did the most to hold Britain's business leaders to account is stepping down.

I don't intend to stand for re-election to Parliament: pic.twitter.com/LMwLH9L8t6

This is a bad sign for Labour: Wright is well respected and was achieving things as a backbencher - e.g. skewering Sports Direct bosses. https://t.co/dJGyVipk4y

Praise where it's due - Iain Wright & his BIS Committee have done more to hold Mike Ashley & his ilk to account than any other group of MPs https://t.co/12V8yP26wm

9.29am BST

Britain's retailers should be celebrating yesterday's surge in the pound, as it will make it cheaper to import goods from abroad.

Analyst Nick Bubb comments:

Well, the Fixed Term Parliament Act was meant to bring us "stability" and "certainty", but we are now told we need a General Election on June 8^th for that"Time will tell whether an increased Tory majority will deliver the "softer" Brexit the City hopes for, but retailers will be pleased if sterling has now bottomed out"

8.59am BST

Fashion group Burberry is helping to pull the FTSE 100 into the red today, after reporting underwhelming results.

Burberry's shares have shed 6.7%, their worst fall since October, after reporting a sales slowdown, due to tougher conditions in the US.

8.44am BST

Our Politics Live blog is up and running, and tracking all the election action.

Theresa May has already been interviewed on the Today Programme, where she's ruled out a second EU referendum, and defended her decision to call a general election:

8.40am BST

The FTSE 250 index, which is a better gauge of the UK economy than the FTSE 100, is having a slightly better morning.

It's clawed back 43 points, or 0.23%, having lost over 220 points yesterday.

8.30am BST

FTSE 100 turns lower year-to-date, the move coming a day after its worst session since Brexit vote. pic.twitter.com/ZXte9VnkuP

8.27am BST

The pound is holding steady this morning - which is another way of saying that it's not done much yet.

Sterling is trading at $1.284 against the US dollar, having surged to a six-month high of $1.29 late last night.

Pound stays above $1.28 after surging 2.2% when Theresa May called for a general election https://t.co/9MLpcOUhzZ pic.twitter.com/eupNnp6FFq

Yesterday's surprise move by U.K. Prime Minister Theresa May calling a snap election sent the British pound to its highest levels against the US dollar since October.

The 400-pip move [from $1.25 to $1.29] from low to high is not a reflection of the short-term fundamental outlook for the U.K.'s economy. But traders expect the snap election to lead to stronger negotiation powers with the EU on Brexit terms, thus a softer exit. Today we expect May to win parliamentary support for the snap election, but the reaction on the Pound to be mild, given it's already priced in.

8.20am BST

Robin Bew of the Economist Intelligence Unit reckons that low turnout might scupper Theresa May's hopes for a whopping majority:

#UK Gov will gain seats in election, but fewer than polls suggest. Partly due to exactly which seats competitive. Partly due to low turnout

.@WPP's Sir Martin Sorrell says business will use snap election as "another excuse to do nothing" @BBCr4today

8.15am BST

Britain's leading stock index has shed all its gains for 2017, as Theresa May's election call continues to grip the City.

The FTSE 100 has fallen by 17 points at the start of trading, adding to the 180 points it lost yesterday.

The market's clear belief is that the incumbent party will win again, and with a bigger majority. This in turn will make for a cleaner break when the Brexit negotiations conclude - something that has driven the pound crosses out to six month highs.

Success in today's vote in Parliament - which is required to approve the early election - is a foregone conclusion, but the risk is that the vote in early June doesn't return the result that's expected. Early polling suggests it will, but with the centrist Liberal Democrat party likely to make sweeping gains from their diminished current position, they could be the deal-makers again as they were in 2010. Given they are expected to be running on a ticket that promotes retaining single market access, we should be bracing for further volatility as this campaign unfolds over the next seven weeks.

7.50am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

City traders have come down with a double-dose of election fever.

The independent centrist, who is running in his first election, had been seen as a frontrunner but faces a gruelling final few days before the first-round presidential vote this Sunday.

Styling himself as a pro-Europe progressive, he went from dark-horse outsider to favourite three months ago. But as polls narrow and a third of the electorate remains undecided, the race has become increasingly uncertain.

If delivering a "successful" Brexit involves making a few pragmatic compromises - which is surely the lesson from the initial skirmishes with the EU negotiators - you can't blame May for seeking cover from the hard-liners in her own party. And kicking out the next election until 2022 seems a smart political move: it would allow time for a three-year transitional phase before UK voters go back to the polls, which could take the edge off any economic shock at the moment of Brexit in 2019.

So, yes, it was fair for investors to take some comfort in the idea that a market-friendly "soft" Brexit is now easier to imagine. Just don't get too carried away with the idea. Investment uncertainties rarely evaporate so easily. If the election delivers a messy result - even a barely improved Tory majority - what would really have changed?

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