Pound surges but Footsie loses £46bn as UK heads to the polls – as it happened

Graeme Wearden

from on 2017-04-18 17:41 (#2KEF1)

Sterling has rallied strongly as analysts predict Theresa May will secure a larger majority in the June 8 general election

6.42pm BST

PS: Here's our news story about today's market reaction to the snap election:

6.24pm BST

London traders are catching their breaths after the most volatile day for some months. So here's a closing summary.

The British pound has soared to its highest levels of the year after Theresa May stunned Westminster, and the City, by calling for a general election on June 8th. Sterling has gained two cents against the US dollar, and is also up against the euro tonight.

Deutsche Bank, one of the biggest sterling bears in recent years, says it's changing its view. 2017 election a "game-changer" on Brexit pic.twitter.com/IlYvqYhUlq

5.56pm BST

Swiss bank UBS has just fired over a research note on the snap general election.

They predict that the pound will rally against the US dollar over the next year, to around $1.36, and that shares will also rally over the next six months.

5.36pm BST

After a highly volatile day, the pound is sitting proudly at its highest level since last December.

Sterling is currently up two cents against the US dollar at $1.276, and up one euro cent at a1.191. They're both the highest levels in four months.

The fall in the stock market is not a negative response to the UK election per se, rather it is a knock on effect of a surging pound, combined with price falls in some key commodity markets, all of which has taken its toll on the heavyweights of the FTSE 100 index.

With the Labour party in disarray and polling (in a poll of polls) around 15 points behind the Conservatives, and the Lib Dems still facing an uphill struggle to win a lot more seats, the 8th June will likely see Theresa May elected with a larger majority.

This will not just put her in a much stronger positon when negotiating with Brussels, but also should mean that the influence of some of her own hard-Brexit backbenchers may be significantly diluted.

5.22pm BST

Biggest 1-day fall in #FTSE100 since #Brexit vote (-2.4%) as GBP strength weighs on UK large cap stocks reliant on revenue outside of UK

5.08pm BST

By my reckoning, today's slump has wiped off around 46bn from the combined value of the 100 companies in the FTSE 100 index.

4.56pm BST

Ouch! Britain's FTSE 100 index has suffered its biggest one-day fall since the aftermath of the EU referendum last June.

The blue-chip index has ended the day down 180 points, or 2.46%, at 7147 points.

Incredibly, on a day where the UK stocks are suffering so heavily, it is not the announcement of a general election which has caused the biggest losers, but instead the falling price of iron ore, which has dragged the likes of BHP Billiton, Anglo American and Glencore to the bottom of the pile.

4.32pm BST

Media Eghbal, Head of Countries' Analysis at Euromonitor International, is worried that the election will hurt the UK economy.

She says:

Weeks of campaigning leading up to the June election will add further uncertainty to an already highly ambiguous UK outlook. This will weigh on confidence and encourage investors to continue to hold off investment decisions until after the elections so it may well be now that we will start to see a slowing of economic growth.

With elections due in 2017 in Europe's three largest economies of Germany, France and now the UK (contributing 43.1% of European GDP in 2016), volatility in Europe is only set to get worse."

4.23pm BST

A general election means new manifesto promises from the UK's political parties.

And that could mean that existing pledges on, say, pensions and national insurance rates are ditched.

"While Brexit related matters will clearly dominate June's General Election, Political Party Manifestos could reopen other contentious issues including pensions, savings, taxation and the changing nature of employment. This could include the future of the state pension triple lock, which had looked safe until 2020, the shelved increases in self-employed National Insurance and the unfortunate 'will they, wont they' debate on pensions tax relief reform. Whilst revisiting these policy areas may not be a vote-winner amongst pensioners, higher rate tax payers, or the self-employed, the opportunity exists for all parties to set out their stall on these key issues, creating much needed longer term stability.

"We may also see a new set of economic concerns rising in voters' minds. For example, pensioners on fixed incomes are particularly affected by the ongoing uptick in inflation we've seen since the decision to leave the EU. Some older voters may start asking questions about each of the parties' plans to ensure it doesn't surge much beyond current levels."

all those tax commitments now gone. Commitment to keep triple lock on state pension also now dead. Unless renewed in 2017 Manifesto

3.57pm BST

With 30 minutes until the close of trading, the FTSE 100 is firmly on track for its worst day since last June.

The blue-chip index is down 2.3%, or 168 points, at 7159, as the surging pound eats into the value of multinational firms in London.

3.30pm BST

Over in parliament, chancellor Philip Hammond has hailed the surge in the pound's value today.

(The) prime minister's statement this morning has sent sterling up in the markets, demonstrating the confidence that the markets have in a future, for this country, under a Tory government with a new mandate."

3.19pm BST

A glance at historic opinion polls shows why the City expects Theresa May to romp home in June....

Theresa May will go into the #GeneralElection with the largest lead of any Conservative PM in modern history pic.twitter.com/LtfUh8MTno

3.00pm BST

Most City economists and investors seem convinced that Theresa May is going to win the general election by some distance (as do the bookmakers, to be fair).

Here's Nancy Curtin, chief investment officer at Close Brothers Asset Management, explaining the market reaction:

"With Brexit negotiations on the cards, the Prime Minister has sought to strengthen her hand by calling a General Election. A successful election in June would likely provide May with a larger majority, one that would ease the process of agreeing terms of negotiation in Westminster.

As we have seen across the Atlantic, a divided party can cause delays in driving policy change - delays the Prime Minister simply does not have time for, so this move to consolidate her power is wise, especially as recent polls show the Conservatives leading by more than 20 points ahead of Labour. Much depends on the Conservative manifesto - but the election campaign is unlikely to upset the markets.

2.50pm BST

The International Monetary Fund has just got Theresa May's election campaign off to a good start, by hiking their UK growth forecasts.

The IMF now expects Britain's GDP to expand by 2% this year, up from 1.5% back in January and just 1.,1% last year, outperforming almost every other advanced economy.

"The global economy seems to be gaining momentum - we could be at a turning point.

"But even as things look up, the post-world war two system of international economic relations is under severe strain despite the aggregate benefits it has delivered - and precisely because growth and the resulting economic adjustments have too often entailed unequal rewards and costs within countries."

2.26pm BST

Share prices in London are suffering further losses.

The FTSE 100 is now down 151 points, or 2%, at 7175, putting it firmly on track for its worst one-day performance since the Brexit vote.

2.05pm BST

Deutsche Bank has declared that the general election is a "game-changer" for the pound, forcing it to tear up its forecasts.

Deutsche had been one of the most bearish voices in the City about sterling. Last month, it predicted that the pound would fall further as Brexit negotiations began. Not any more....

Deutsche Bank, foremost among the sterling bears, are binning their forecasts: "We are closing out all our bearish FX trades"

Deutsche Bank, one of world's biggest sterling bears, to raise sterling forecast in coming days, says UK election news a "game changer".

1.59pm BST

Breaking! The pound has now hit its highest level against the US dollar since last December.

Sterling has extended its gains, and is now up 1.6 cents at $1.2729 - a four month high.

"Sterling has taken the news of a snap general election positively, as while it means increased political uncertainty in the near term, it probably means less uncertainty in the longer term.

"If Theresa May gets a significantly increased mandate it will strengthen the UK's position in Brexit negotiations. In any case, while the UK may be distracted for the next few weeks of political uncertainty, there probably isn't much benefit in the UK engaging with French and German governments on Brexit ahead of their own elections."

1.53pm BST

By calling a June election, Theresa May is effectively getting an extra two years to steer Britain through Brexit, as the next election needn't come until 2022.

So argues Neil Williams, Chief Economist at Hermes Investment Management:

The PM's call today to bring forward the election to 8 June looks both a way of consolidating her political position and tacit recognition that completing onerous Brexit negotiations will take longer than the two years hoped for by triggering Article 50.

Holding the election this June instead of by May 2020 effectively offers her an extra two years to strike a deal before having to go to the nation again.

I fear our negotiations could take many years to potentially end up back close to square one in terms of striking Mrs May's preferred "bold and ambitious free trade agreement". This suggests she will negotiate to maintain access to - but no longer full membership of - a tariff-free system (akin to Canada's deal), and/or a customs union (similar to Turkey's).

Even this will need time. First, the deal when struck will need Parliamentary approval, and then be subject to a 'phasing in' period (Mr Hammond has suggested two years) to allow firms, consumers and officials to adjust to the new arrangements. A second independence referendum in pro-EU Scotland, though not precluding Brexit, would also have provided an extra hurdle to completing it before the previous election deadline of May 2020.

1.39pm BST

The pound is on the brink of hitting $1.27, up over one cent today.

Carlo Alberto De Casa, chief strategist at City firm ActivTrades, says the market is confident that Theresa Ma will win a larger majority on 8 June.

"Markets tend to like a stronger government - they are predicting one in the UK due to the apparent weaker situation Labour is in - and we have seen in Turkey what a similar situation can do for the currency.

1.17pm BST

Despite today's rally, the pound is still worth 15% less against the US dollar than before the EU referendum:

The pound certainly up sharply today but worth putting it in context. Here's vs $ over the past year pic.twitter.com/hb0SazmXtR

1.15pm BST

The poll on June 8 will be a "Brexit referendum", says Mujtaba Rahman of Eurasia Group, an analyst firm.

Rahman expects Theresa May will win a substantial majority, which will prevent pro-EU MPs from pushing for a 'soft Brexit' (eg, with membership of the single market).

Unity is the Tories' secret weapon. Pro-EU Tory MPs will not defy May's line during the election. They are therefore much less likely to fight for soft Brexit once she has won a mandate. The Lords, however, will still have a soft Brexit majority. Peers will still apply pressure to May but without backing in the Commons the unelected second chamber will be powerless to halt a hard Brexit.

An election will therefore strengthen May's hand in the Brexit negotiations. The EU27 would arguably also have to treat her with more respect-not someone who, as Nicola Sturgeon recently reminded May, had never won an election as leader.

12.59pm BST

A Conservative victory in the general election is almost a racing certainty, according to the bookies.

The odds on a Conservative outright majority are 1/5, said Ladbrokes, with Labour's chance of winning the most seats put at just 7/1, with even longer odds, 12/1, for obtaining a majority.

"May's change of heart has caught everyone by surprise, but it's looking hard to see Labour springing their own on June 8th with the Tories long odds-on for victory."

12.59pm BST

The FTSE 100 is extending its losses, and now down 130 points or 1.7% at 7197.

That's means we're on track for the biggest one-day selloff since the Brexit vote, as the Telegraph's Tara Cunningham tweets:

#FTSE100 heads for worst day since immediate aftermath of Brexit vote (June 27, when it fell 2.6%). It's currently off 1.6% #GeneralElection pic.twitter.com/sonlUr3ZL8

12.51pm BST

City experts are in broad agreement that Theresa May will win a larger majority on June 8th:

Here's Dean Turner, an economist at UBS Wealth Management:

"We believe it is highly likely the Conservatives will increase their majority and firm up the future direction of government policy, particularly in regard to Brexit."

"I guess people see that this may give Theresa May a better majority. It is a politically astute move and it should provide more stability going over the immediate aftermath of the exit from the EU."

12.39pm BST

Stephen Martin, director general of the Institute of Directors, hopes that the general election won't JUST focus on Brexit.

Politicians need to offer solutions to other problems, such as the rise of robotics and the gig economy, he says:

"Businesses are having to get used to being buffeted by the changing winds of politics at the moment, and will just have to endure yet another campaign. This must be used as a chance to properly debate what leaving the EU means for the long-term future of the UK, including how we continue to bring in the skills employers need.

"While Brexit will inevitably dominate the campaign, there are also much wider questions that need to be addressed on the changing nature of business and work, automation and our ageing society. These can't be ignored in the run up to June 8, and the business voice must be heard in this crucial discussion."

12.31pm BST

The pound had rallied because Theresa May is likely to win a "significant majority", says Peter Ashton, managing director of Eiger FX:

"There is still huge uncertainty surrounding the implementation of Brexit but a strong majority party will help to provide a degree of stability while we negotiate the choppy waters ahead.

12.28pm BST

Rob Aird, corporate partner at law firm Ashurst, says Theresa May's decision shows just how big and complex Brexit will be.

He argues that the general election will have two principal effects:

Optimists will say that it gives the public a chance to have their say on who should run the country during the negotiation process and how that process should be run.

Cynics will argue that the Government has called this election as they sense an opportunity to increase their parliamentary majority, and extend their time in power, which will likely make agreeing and implementing Brexit (and any transitional arrangements) much easier to achieve domestically.

12.25pm BST

Britain's stock market is on track for its biggest one-day fall in three months, as the surge in the pound hits shares in London.

The FTSE 100, which is packed with Britain's largest companies and many multinationals, has shed 116 points to 7210. Only four of the 97 companies in the Footsie are up today.

12.17pm BST

Dr Adam Marshall, director general of the British Chambers of Commerce, is worried that a general election could be a damaging distraction.

"Many business communities will understandably be concerned that attention will inevitably shift from the economy and the intricacies of leaving the EU to a potential election campaign. Firms will want to be reassured that the key challenges facing the economy will be front and centre throughout any election period."

12.16pm BST

Many City experts (like many MPs!) have been caught off-guard by today's shock news.

Aberdeen Asset Management Investment Manager Luke Bartholomew says it will take a while for investors to calculate what it means for Britain's exit from the European Union.

"No one was expecting this. Not least because the Government itself ruled an election before 2020 out barely four weeks ago. But Theresa May has clearly smelt an opportunity to consolidate her mandate ahead of the Brexit negotiations.

The market reaction has been muted so far. Sterling sold off initially and has now come back. But it will take investors some time to digest the effects of the election in the next few days. A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely. The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party's stance on Brexit. That would be welcomed by financial markets. There's also a decent chance of some volatility now with imminent elections in both the UK and France."

12.14pm BST

The pound has risen to a four-month high against a basket of international currencies.

12.06pm BST

The pound has surged to its highest level since the start of February, following the dramatic news that Theresa May is calling for a general election on June 8th.

Sterling has ripped higher after the prime minister declared that Britain will head to the polls in a few weeks time.

"After much speculation this morning, the Prime Minister has confirmed that she is calling an early general election to fully implement the Brexit process.

"Following some initial weakness ahead of the statement, Sterling has stabilised and is slightly up on the day. Gilts yields have also been stable, with the 10-year yield hitting a session low of 1.01%.Overall, today's announcement suggests that PM wants full control of the Brexit process without any interference from the opposition."

11.08am BST

It's official! Theresa May has called for a general election, on 8 June.

Sterling has actually recovered its early losses, and is back to $1.257 against the US dollar.

11.00am BST

FXTM Vice President of Market Research, Jameel Ahmad, sums up the mood in the City right now:

There has been some sudden selling in the British Pound over the past few minutes following the news that UK Prime Minister Theresa May will be making a statement within the next hour.

There are unconfirmed rumors at this stage circulating that Theresa May might be stepping down, while there are other reports going around that this could be linked to the announcement of a UK general election.

10.53am BST

Money is also pouring into UK government bonds, as nervous investors prepare to hear Theresa May's statement.

That has driven the price of UK debt up, sending the yield (or interest rate) on 10-year bonds down to a six-month low.

*U.K. 10-YEAR YIELD DROPS BELOW 1%; FIRST TIME SINCE OCTOBER

10.27am BST

Back in the City, the pound has fallen sharply following the news that prime minister Theresa May will deliver an unexpected statement at 11.15am.

The Westminster rumour mill is in overdrive, with speculation of an early general election. And that's pulled sterling back towards $1.25, having hit a three week high this morning.

Current rumours on PM announcement:

1. Snap Election
2. PM to resign on health Grounds
3. No one has a clue#GBP

9.54am BST

On the other hand, the euro could rally if French voters plump for a more mainstream candidate.

Kathleen Brooks of City Index predicts a 'relief rally' if Marine Le Pen is eliminated in the first round of voting, on Sunday.

Since Marine Le Pen is the most euro-toxic of all of the candidates, one can assume that a first round eradication for her Front National Party could trigger a relief rally in the euro in a week from now. We mentioned in our previous note on the French election that Francois Fillon's candidacy was worth a second look. He has a solid block of conservative voters, whose numbers may be swelled if it is a means of keeping Le Pen out of the Elysee Palace. Added to that, French voters are surprisingly immune to scandals, such as those that have plagued Fillon's candidacy.

While the latest odds still give independent Emmanuel Macron a healthy chance of winning in May, his odds have fallen as those of Fillon and Far Left candidate Melenchon have surged. If we get a Macron/ Fillon second round run-off, this is likely to be considered "market friendly", triggering a rally in the euro, the Cac, but also in the German Dax and Eurostoxx index, which have had decent correlations with the French bond yield this year.

9.45am BST

Jordan Hiscott, chief Trader at ayondo markets, believes the euro would suffer sharp losses if the French election delivers a surprise result.

While at opposite ends of the spectrum politically, both are unhappy with the current terms of being in the Euro, with Le Pen after an outright referendum and Melenchon pushing for re-negotiation of the current terms, or an exit if this can't be achieved. What can we determine from this? Two French politicians at opposite ends of the political spectrum, almost united in their mutual dislike, in its current form, of an institution they were the key founders of and have been the biggest supporters of for the past 30 years.

"If we extrapolate this to Europe's financial assets, looking at EUR-USD in particular, the prognosis is not good. The dual effect of two anti-EU politicians could weigh heavily and while currently trading around 1.0625, it wouldn't surprise me to see parity with the US dollar following a Le Pen or Melenchon victory. Amazingly enough, this wouldn't be a level seen since the October 31 2002, and a lifetime away from the all-time high of 1.60 in 2008. Whatever the result from the French elections, its arguable, the fragmentation of Europe is in swing."

9.35am BST

France's borrowing costs have inched up this morning, widening the gap with safe-haven German debt.

That's a signal that investors are getting more worried about Sunday's election.

France's 10-year bond yield rose 2.5 basis points in early Tuesday trade to 0.93 percent, while German Bund yields were marginally lower at 0.18 percent and within sight of Friday's more than three-month low of 0.16 percent.

That left the gap between the two at 75 basis points and not far from six-week highs hit last week around 78 bps.

9.19am BST

Christine Lagarde has also claimed that Britain's economy is starting to suffer from last year's Brexit vote -- even though growth has been rather stronger than the IMF predicted.

QUESTION - You say the UK is still having growth, being still in the EU. Do you think that Brexit can be a bad trip for the UK?

MS. LAGARDE - As you know, we had anticipated a much lower growth than the UK has demonstrated during the last quarters. But we are beginning to see - in terms of disposable incomes, of depreciation of the currency, etc. - the beginning of the impact of Brexit. And the more discussion there is of companies or financial institutions relocating to Frankfurt, Dublin or Paris, the more uncertainty there will be in a country where the capital city plays such a role as a financial center.

9.11am BST

On America, Lagarde seems to acknowledge that criticism of Germany's trade surplus are valid --- although she doesn't approve of Donald Trump's approach:

QUESTION - Is Trump right to criticize the German trade surplus? Are the bad guys saying the right things?

MS. LAGARDE - I would stay away of the "bad guy" language--that is a moral judgement that does not have a place in the kind of work we do.

9.09am BST

During her interview with European reporters, Christine Lagarde also warned that the IMF is adamant that Greece needs debt relief - and it won't join its bailout programme until this is tackled.

QUESTION - Without a debt restructure upfront, the IMF will not participate?

MS. LAGARDE - If the Greek debt is not sustainable in accordance with the IMF's rules and on the basis of reasonable parameters, we will not participate in the program.

9.04am BST

Here's a summary of the latest French polling data:

8.47am BST

Christine Lagarde, the head of the International Monetary Fund, has warned that the French presidential election is casting a "huge question mark" over the eurozone.

Q: Is the fate of the euro also at stake in the French presidential elections?

MS. LAGARDE - It is clearly one of the debates. And one that actually weighs on the confidence and the stability of the euro area--because if one of the largest partners is wondering if its destiny and fate is in or out of the group, it is a huge question mark for the others.

There is no single country that I have visited in the last couple of months where I have not been asked with anxiety what the outcome might be.

It matters because of the role played by France, the size of the French economy relative to other euro area partners, and because some of the ideas being discussed seem aimed at disrupting the current architecture of the European Union as far as France is concerned.

8.12am BST

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

The latest poll (from Opinionway) puts macron and Le pen at 22%, Fillon at 21% and Melenchon at 18%. So where last week it was Melenchon who was surging, now M Fillon is closing in.

Uncertainty reigns supreme and relative rates are going to struggle to drive the Euro higher against that backdrop.

North Korea faced another failure in its nuclear test and investors are wondering what will be the reaction from the US and its allies. The demand for other safe haven assets also picked up in the light of this, spot gold is moving further closer to our target of $1300.

We are sitting near a five month high. When it comes to the gold price, we do think that the momentum could easily continue and bias remain skewed for more upside move.

"It seems the focus is now firmly on future missile tests from North Korea and whether any future tests will actually be successful. One suspects the concerns in North Korea have further to play out."

Our European opening calls:$FTSE 7313 -0.20%
$DAX 12134 +0.21%
$CAC 5086 +0.29%$IBEX 10363 +0.36%$MIB 19818 +0.23%

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