What you need to know
As it stands, this could go down as one of the most impressive political backfires in UK history. After Brexit, of course.
From a position of apparent strength less than six weeks ago, it looks very likely that PM May will see her parliamentary majority erased. A Conservative loss of outright power would surely call into question her own position as Tory leader after less than a year. Strong and stable leadership? Not recently, with a series of policy faux-pas and embarrassing U-turns. The question now is whether she will still be leading the ship when the UK begins its looming Brexit negotiations.
A hung parliament was the most extreme scenario forecast; a Labour win was never on the cards. Once again, however, markets have been surprised by how voters cast their ballot. But the market reaction thus far has been remarkably sanguine. Panic it is not. Although uncertainty is once again rife.
GBP has already reacted negatively versus USD, falling to levels last seen when the PM called the surprise snap election on April 18. It is pricing in uncertainty about what a hung parliament will mean for the UK’s Brexit discussions with Brussels, set to begin in less than a fortnight. Especially with the Lib Dems continuing to rule out a coalition and after a bad night for the SNP which lost ground to the Tories. Northern Ireland may prove the hinge factor for May. There is also economic uncertainty given that a Labour minority government or Labour-led coalition would likely be less business friendly. GBP was already weak versus the EUR, and ventured close to 2017 lows overnight.
On the flip side, FTSE100 futures have been remarkably resilient, falling just over one per cent overnight. And only as far as late May lows, from which they have already rebounded as the international contingent once again embraces the weaker pound and translational benefits that offers. Similar to what we saw in the wake of last June’s referendum.