Daily Management Review

While Fallout Limited Elsewhere, Sterling Stunned By UK Election Shock


06/09/2017




While Fallout Limited Elsewhere, Sterling Stunned By UK Election Shock
Sideswiping investors who had already weathered major risk events in the United States and Europe, sterling spiraled lower on Friday as British elections left no single party with a clear claim to power.
 
British Prime Minister Theresa May had no way to win an outright majority in parliament with the majority of seats counted in the snap vote.
 
Riding on fears that the political turmoil could delay and confound talks on leaving the European Union, which are due to start in less than two weeks, the shock outcome saw the pound shed 2 percent.
 
But with E-mini futures for the S&P 500 ESc1 edging up 0.1 percent, the damage was limited elsewhere.
 
MSCI's broadest index of Asia-Pacific shares outside Japan were all but flat and Japan's Nikkei added 0.5 percent.
 
"This is messy for the UK economy and its Brexit negotiations and hence is a negative for the pound and share market," said Shane Oliver, chief economist at AMP.
 
"But the UK is just 2.5 percent of world GDP and it's hard to see significant implications for global investment markets."
 
While markets had expected a handy victory, an exit poll which showed the ruling Conservatives could fail to win a clear majority started the rot.
 
Following a big swing to the left-leaning opposition Labour Party, the Conservatives would hold a reduced 318 seats in the 650-member parliament, the BBC forecast.
 
wagers on whether May would still have her job by the end of the day were already being taken by betting agencies.
 
"At this stage, there is no obvious way a formal, stable coalition government can be constructed, and therefore there is a high likelihood of a potentially prolonged period of uncertainty over who will be prime minister," said John Wraith, a strategist at UBS.
 
Yet he cautioned bears against chasing the pound much lower from here.
 
"Today's result will in part be seen as a vote against a definitive break from the EU, and the market may soon begin to reassess the probability of a so-called 'hard Brexit'."
 
As the Japanese yen gave up early gains and eased to 110.20 per dollar, there was much less drama elsewhere. 
 
When the European Central Bank said it had not discussed scaling back its massive bond-buying campaign, sending bond yields to multi-month lows and cut forecasts for inflation, the single currency had slipped overnight.
 
The testimony of former FBI director James Comey was not life-threatening to the administration of President Donald Trump, the Wall Street had seemingly judged overnight.
 
"I think the market is taking less of an alarmist review of this situation because there is no smoking gun here," said Jefferies & Co money market economist Thomas Simons.
 
"So it's not particularly impactful for thinking about... Trump's economic agenda to go through."
 
While the Nasdaq Composite gained 0.39 percent, the S&P 500 gained 0.03 percent and the Dow rose 0.04 percent.
 
Spot gold was 0.3 percent lower at $1,274.45 an ounce in commodity markets.
 
And with Brent having settled at its lowest since Nov. 29, the eve of an OPEC production cut deal, oil prices remained subdued.
 
(Source:www.reuters.com)






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