I had booked my flights for a pre-Christmas visit to London before it was announced that there would be a General Election in the UK on December 12th. As such I find myself here on a highly significant day for the UK economy. Given that the purpose of the Election was “to get Brexit done”, it’s been curious, albeit not surprising, that the Establishment have done their best to make it all about the NHS and Climate change and ignore Brxit completely as they push for a hung parliament. That way they believe that they can continue with their plan for a second – stay or just remain – referendum. In response the Conservative Party have spent the last two weeks targeting the unsuitability of Jeremy Corbyn to be Prime Minister and highlighting the devastating impact should he, or more accurately his hard line self confessed Marxist Chancellor get anywhere near power.
The polls, when put through a constituency matrix appear to suggest a majority in the 30-40 region for the Conservatives with the wild cards mainly being the Lib Dems damaging Labour more than expected and the Brexit Party damaging the Conservatives. The betting markets are currently pricing around 27-30 seat majority. The fact that the financial markets, and especially Sterling, have been steady and rising suggests that they at least do not buy into the prospect of a Corbyn government, but the question is are they actually betting on a hung Parliament – which is second favourite at 9/4? After all, the fact is that sterling has priced a soft Brexit better than a harder one consistently over the last three years. If so, a Conservative win might turn out to be a disappointment for the currency traders.
Currently Sterling is back near the top of its 2 year range against the Euro, which suggests that unless there is a decided breakout, it might make sense to fade any rally. As ever, this is not making any statement about the real economics, rather that the noise traders tend to get committed to a viewpoint ahead of an event. Hopefully we can (finally) be in a position to make some judgments based on fundamentals this time tomorrow.
