Pound falls, shares rise after UK election
The pound initially fell 2.5% against the dollar after the shock election result, but had recovered some ground by the time London markets closed. It was still down 1.6% at $1.2740 but was off its eight week lows against the US currency. Even so the decline gave some support to the FTSE 100 and its overseas earners, while news that Theresa May was forming a government - even if with the help of the DUP - provided some support for shares and the pound. European and US markets shrugged off the UK result, with the Dow Jones Industrial Average hitting a new peak as investors preferred to concentrate on the latest twists in the Donald Trump saga.Jasper Lawler, senior market analyst at London Capital Group, said:
Although the pound fell, the FTSE 100 as well as other global indices opened higher on election result day. Traditional havens like gold and the Japanese yen dropped as global markets shook off the result as a UK-only affair.
The closing scores in Europe showed:
- The FTSE 100 finished up 77.35 points or 1.04% at 7527.33
- Germany’s Dax rose 0.8% to 12,815.72
- France’s Cac closed up 0.67% at 5299.71
- Italy’s FTSE MIB was 0.38% better at 21,122.42
- Spain’s Ibex ended up 0.23% at 10,978.3
- In Greece, the Athens market added 0.39% to 782.10 ahead of next week’s key eurogroup meeting
On Wall Street, the Dow Jones Industrial Average is up more than 100 points or 0.5%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back on Monday.
But don’t forget our politics blog is still going, with all the latest developments in the wake of the election result:
Updated
The ratings agency also warns another election could be on the horizon (!):
Prime Minister Theresa May will seek to form a government with support from Northern Ireland’s Democratic Unionist Party, known as the DUP, after her governing Conservative Party fell short of a parliamentary majority. While this would avoid a prolonged period of coalition talks, the terms of the agreement are unclear and another election in the near term is possible.
Fitch added:
The election increases the possibility of looser fiscal policy. The Conservative manifesto aims to balance the UK budget by the middle of the next decade, later than previously planned, although detailed tax and spending proposals were broadly consistent with March’s budget. But Labour’s stronger-than-expected performance after campaigning for higher public spending and investment funded by higher corporation tax and other tax increases suggests that “austerity fatigue” is a meaningful factor in UK politics. Meanwhile a minority or Conservative-led coalition government may have to compromise on the pace of fiscal consolidation or specific policy measures to maintain parliamentary support (the reversal of proposals to increase social contributions for the self-employed in March’s budget highlighted a degree of inflexibility in fiscal policy making).
The possibility of a second Scottish independence referendum has receded after the Scottish National Party lost 21 MPs compared with the previous election in 2015, although it remains the largest party in Scotland.
We will continue to assess the UK’s sovereign creditworthiness with reference to the resilience of its economic growth prospects and its public finances as the domestic political situation develops and Brexit talks begin. We affirmed the UK’s sovereign rating at ‘AA’/Negative on 5 May. The next scheduled review is on 27 October.
Fitch says election result adds to Brexit uncertainty
Fitch has now chimed in on the election result and says, unsurprisingly, it will cause uncertainty:
The UK general election result creates uncertainty over the policy platform, political cohesion and longevity of the next UK government, Fitch Ratings says. This will have implications for Brexit and potentially fiscal policy. The political, economic and institutional uncertainty stemming from the June 2016 Brexit referendum and the upcoming UK-EU negotiations is reflected in the Negative Outlook on the UK’s ‘AA’ sovereign rating.
Updated
If the UK’s Brexit negotiating stance remains unchanged despite the election result, that would a negative according to Deutsche Bank. Analysts Oliver Harvey and Mark Wall said:
We see the initial move lower in the pound on the election result as justified. The election has resulted in a weaker rather than a stronger UK government, which will make negotiations with the EU27 more difficult. The medium-term outlook will depend on the tone of the Prime Minister’s stance on Brexit and fiscal policy over the next few hours and days. A course towards softer Brexit, and even a second referendum, has potentially been opened, albeit is highly path-dependent. But if the UK government sticks with existing Brexit plans in a much weaker domestic political position, significant sterling and/or economic weakness would again be required to shift the UK away from a crash Brexit.
On that front, we view the Prime Minister’s just-delivered speech on the steps of Number 10 as extremely negative. As well as confirming that Brexit negotiations will begin on schedule in 10 days’ time, the speech made no concessions to the Conservatives’ weak showing last night or the clear electoral rejection of hard-Brexit plans.
Just a reminder. The latest political developments after the shock UK election result are in our live blog here:
Wall Street opens higher
The shock UK election result has had little effect on US markets, which have been more concerned about the latest revelations surrounding Donald Trump, notably Thursday’s testimony from ex-FBI boss James Comey.
The Dow Jones Industrial Average is currently up around 60 points , while the S&P 500 and Nasdaq Composite both opened up around 0.13%.
UK government bonds could fall back if the new administration decides to boost the domestic economy. Chris Iggo at Axa Investment Managers said:
Britain hasn’t been doing elections (referendums) very well recently. Last year’s vote on European Union (EU) membership and the General Election of 2017 have not resulted in the desired outcome for the two people that called the vote... More importantly, Britain faces huge uncertainty about its place in the world together with significant internal divisions.
Going forward, one strategy might be to make sure people feel better about the domestic economy at least, in case things don’t go well with Brexit. That may mean less austerity. From the UK bond market point of view, interest rates are not likely to move but gilt yields could rise if the new government thinks allowing some fiscal slippage is an acceptable price to pay for staying in power. Gilts could underperform US Treasuries and Bunds as a result, and break-even inflation rates could move back to their highs of earlier this year.
More on UK GDP, and Capital Economics has looked at how it has been affected by political uncertainty:
Political uncertainty could weigh on GDP growth. But the economy shrugged off uncertainty related to 2010 Hung Parliament and Brexit vote. pic.twitter.com/iz5x231Urd
— Capital Economics (@CapEconUK) June 9, 2017
UK economic growth subdued - NIESR
The UK economy was seeing subdued growth ahead of the election, according to think tank NIESR.
Its latest estimate of GDP showed output growing by 0.2% in the three months to the end of May, the same as during the three months ending in April. This is below its long term trend of 0.6%, it said. NIER’s James Warren said:
The subdued performance of the economy in the three months to May was driven by weakness in the production sector, offset by a mild rebound in services. The current political backdrop may lead to greater uncertainty and a drag on growth prospects, in particular business investment, which contracted in 2016.
In the light of the election result, NIESR director Jagjit Chadha, added:
The subdued performance in the economy throws the political turmoil of a hung Parliament into sharp relief. People are looking for answers to low levels of economic growth, limited improvements in productivity and falling real wages. That none of the parties wholly addressed our long run problems or how we ought to address exit from the European Union is the reason there was no clear winner.
NIESR’s most recent economic forecast, published in May, suggested GDP growth of 1.7% in 2017 and 1.9% in 2018.
Richard Watts, manager of Old Mutual’s UK Mid Cap Fund, isn’t convinced by Theresa May’s pledge to carry on as prime minister.
He argues that a hung parliament election make a ‘softer’ Brexit, or even no Brexit at all, more likely:
Rather than strengthening her position, she has been significantly weakened, perhaps fatally. It is not clear that she can hold on to her position of prime minister, although she has announced that she intends to do so. In 10 days’ time, talks are set to start with the EU over the terms of the UKs withdrawal from the EU. In our view, the election result has called in to question the government’s mandate for a hard Brexit. It also appears that the DUP favours a soft Brexit and may make this the price of doing a deal with the Conservatives. What this means for Brexit is unclear but it makes a soft Brexit, or no Brexit more likely, in our view. This may not be a bad thing for the UK economy. However, the timing of talks could be delayed as Theresa May seeks to form a government, which adds another level of complexity to the negotiations.
Watts also thinks that Jeremy Corbyn could have dealt a massive blow to austerity, even though he didn’t actually win the election:
With a continuation of a Conservative-led government, we do not expect any major policy changes. If anything, we may see a fiscal easing. It’s obvious that Jeremy Corbyn’s anti-austerity policies have resonated very strongly with parts of the electorate. In time, this could be good for UK domestic cyclical stocks.
Theresa May to form next government
Over in Downing Street, Theresa May has just returned from her audience with the Queen - and announced that she is forming a new, minority government.
It will be a government that can “provide certainty and lead Britain forward” at this critical moment, she says -- not acknowledging the uncertainty created by yesterday’s election.
Over the next five years we will build a country in which no-one and no community are left behind, she insists.
Whart the country needs more than ever is certainty, and having secured the largest number of votes and the greatest number of seats, only the Conservative and Unionist party can provide it, May continues.
She confirms that she will work with the DUP, and pledge to deliver a “successful Brexit deal” that works for everyone.
Now let’s get to work, she concludes, before marching back into Downing Street.
It’s almost as if that pesky election didn’t happen.
No acknowledgement there from May that she has gone backwards - astoundingly defiant, like she thinks no one will notice what happened
— Rowena Mason (@rowenamason) June 9, 2017
Is it possible that Theresa May hasn't actually heard the election result
— Michael Deacon (@MichaelPDeacon) June 9, 2017
I must have missed the bit where she said she was listening to concerns and she was sorry about Tory losses.
— Katie Martin (@katie_martin_fx) June 9, 2017
I would tweet a reaction to May's speech but our stable leader with her strong mandate as told us to get back to work
— Katie Allen (@KatieAllenGdn) June 9, 2017
Today’s hung parliament shock is reminiscent of a similar political crisis over forty years ago.
Our economics editor Larry Elliott explains:
When it closed for business on election day, the City of London was in confident mood. Theresa May was Margaret Thatcher. Jeremy Corbyn was Michael Foot. Labour’s manifesto was, if not the longest suicide note in history, the second longest. Opinion polls were pointing to a Tory majority of about 100, which is what Thatcher got in her second general election victory.
By 10pm when the results of the exit poll were released, it dawned on the City that this was not a rerun of 1983 but of 1974. May was not Thatcher, she was Ted Heath, a prime minister lacking the human touch who had called an election when there was no need to do so. With a hung parliament pointing to the possibility of a second general election within months – another echo of 1974 – the markets responded in predictable fashion by dumping the pound.
Here’s Larry’s full analysis:
Updated
Here are some predictions from another heavyweight global investor, Allianz Global Investors:
- The UK election result may augur a more pragmatic approach to Brexit and increase the likelihood of a ‘soft’ Brexit, perhaps even retaining access to the single market.
- Our high-conviction view is that the Bank of England will put rate rises on hold for the next 2-3 years, or longer. The election reinforces such a view.
- Speculation about another election puts downward pressure on sterling but economic data is likely to be the key driver.
- A weak government or coalition probably means that fewer contentious manifesto pledges can be enacted – although there may still be action on utilities.
Lunchtime summary: Sterling pounded by hung parliament shock
Time for a quick recap.
The pound has suffered heavy losses in volatile trading, as the impact of Britain’s inconclusive general election ripples through the City.
Sterling tumbled over three cents against the US dollar this morning to an eight-week low of just $1.265, putting it on track for its worst daily loss since the EU referendum.
It also slumped to a seven-month low against the euro, at just €1.13, as investors warned that Theresa May could be forced to resign after failing to secure a majority.
But the pound is now clawing its way back, after May seemingly secured a deal with the Northern Irish DUP for a “confidence and supply” arrangement that can keep her in Downing Street.
Theresa May is heading to Buckingham Palace right now, to ask the Queen for permission to form a new government.
Sterling is currently trading at $1.275, down two cents or 1.5% since the exit polls struck, after a wild morning.
Connor Campbell of City firm SpreadEx says the DUP deal has calmed the City, a little:
The pound gradually pulled back from the brink this morning, though the currency still finds itself in a very bad way following the shock general election result.
As expected, Theresa May appears to have made an agreement with the DUP, whose 10 seats in Northern Ireland would allow the Tories to just about manage a parliamentary majority. While the pound is obviously pleased that May is set to visit the Queen at midday to seek permission to form a government – therefore likely avoiding another election in a few weeks times – the unstable nature of such a government, and what that means for the Prime Minister’s ability to negotiate with the EU, has only seen sterling erase the top layer of its losses.
Several major City firms have also voiced their concerns:
-
Legal & General suspects that Theresa May could face a rebellion from angry colleagues
-
UBS has predicted greater volatility for UK assets such as the pound
-
JP Morgan has predicted that Britain won’t be ready to hold Brexit talks in mid-June
- Citi has warned that May could be forced to step down
Many UK companies have suffered losses on the stock market today; shares in housebuilders and banks have fallen, due to concerns that the UK economy will struggle.
Royal Bank of Scotland are the biggest faller on the FTSE 100, down 3.2%, followed by building firms Barratt Developments and Taylor Wimpey.
Retailers such as M&S and Next have also dropped, on fears that a weaker pound will drive up inflation, hurting consumer spending.
After jumping in early trading, the FTSE 100 has dipped back -- currently up 34 points, or 0.5%, at 7484 points.
Multinational companies who will benefit from cheaper pound are rallying, such as drinks firm Diageo and fashion chain Burberry.
The FTSE 250, which is a better gauge of the UK economy, has shed 100 points or 0.5% to 19639.
Business leaders are extremely unimpressed by the situation; the British Chambers of Commerce says it’s essential that the UK has a functioning government, while the CBI urged Westminster to get its house in order.
Credit rating agencies are also watching the situation closely; S&P has warned that Britain’s credit rating could be cut.
Updated
Legal & General Investment Management, one of the City’s biggest investors, is concerned that the governance of Britain ‘hangs in the balance’.
Hetal Mehta, LGIM’s senior European economist, says:
“Theresa May could face a rebellion, as some in her party might blame her for losing both a sizeable lead in the opinion polls and valuable Brexit negotiation time. This could mean that her position might become much weaker, possibly to the extent that she will have to stand down, thereby triggering a leadership contest. As we saw after the EU referendum last year, the Conservatives can pull together relatively quickly to elect a leader, but the risk is that the process is long and drawn out over the summer.
“If the Conservatives become preoccupied with internal party politics, the chances of forming a minority government quickly may be lower, although an arrangement with the DUP is emerging as a likely outcome.
“However, the situation is extremely fluid, and it is worth remembering that back in 2010 the coalition between the Conservatives and Liberal Democrats took six days to form, and that was when that partnership was amongst the likely outcomes. As such, the uncertainty and political wrangling is unlikely to lift quickly.”
UK retailer Sports Direct has told the City that it won’t suffer from the drop in the pound, as it’s ‘fully hedged’.
In a statement, it says:
Following the outcome of yesterday’s general election, and in view of the associated market volatility, in particular to sterling / dollar exchange rates, Sports Direct International plc is pleased to confirm that its sterling / dollar exchange rate is fully hedged for FY18 at 1.31.
Last October, Sports Direct (which pays for some of its imports in dollars) issued a profits warning after a currency hedge backfired when the pound suffered a ‘flash crash’. That cost the firm £15m -- at a time when it was trying to improve its image following the exposure of poor working practices at its Derbyshire warehouse.
The Greek government is leading enthusiastic applause in Europe’s austerity-wracked south for the election result, says Helena Smith in Athens
Describing the result of his “friend” Jeremy Corby as exceptional, Prime minister Alexis Tsipas has just tweeted:
“The left that dares can inspire and mobilise people.”
Εξαιρετικό το αποτέλεσμα του φίλου @jeremycorbyn. Η Αριστερά που τολμά μπορεί να εμπνεύσει και να κινητοποιήσει τους λαούς. #GE2017 (1/3)
— Alexis Tsipras (@atsipras) June 9, 2017
Earlier the Greek government spokesman had called the outcome a resounding rejection of the politics of austerity.
Royal Bank of Canada believe that investors might welcome a Conservative alliance with the Democratic Unionist Party:
If the numbers do allow the Conservatives to form a coalition with the DUP then things could be fairly stable. If not there could be a lot of inertia as it isn’t easy to see how else the Conservatives would be able to form a stable coalition to drive things forward.
Uncertainty about government policy on Brexit and the Budget…and all sorts of other things would be unhelpful and probably be seen as a drag on consumers and businesses.
It would be difficult to assume a successor Conservative leader would follow the same Brexit strategy as Theresa May.
Willem Buiter, global chief economist at Citigroup, says Theresa May is effectively a ‘lame duck’ PM.
He told Bloomberg TV that it’s now unlikely that Britain will start its Brexit negotiations on June 19th as planned.
Buiter also argues that the odds of the UK breaking up have fallen, as the SNP lost seats in yesterday’s election.
The only thing that has changed is that nationalism within Britain, Scottish nationalism, has had a black eye.
This is intriguing. Sky News’s Mark Kleinman has heard that Britain’s banking regulator has been quietly checking whether customers have been taking out more cash than usual today.
Banking regulator said to have reached out to UK lenders to assess deposit withdrawal trends on Friday morning following UK election result.
— Mark Kleinman (@MarkKleinmanSky) June 9, 2017
The City of London Corporation (the Square Mile’s local authority) hopes a new government is formed fast, before the markets are plunged deeper into uncertainty.
They’re also pushing against a hard Brexit deal that would hurt the UK’s financial sector (which, they say, creates £72bn in tax income.)
Policy chairman Catherine McGuinness said:
“The City of London would wish to see an effective and secure Government formed as soon as possible.
“Markets do not like instability.
“It is also important for the prospect of successful Brexit negotiations that we have certainty in the political system.
“In these negotiations with the EU we would hope any new Government recognises the importance of two-way market access, a transitional agreement and the ability of talented people across Europe to get access to the best jobs.
Two of Britain’s leading high street retailers have been hit by worries over the UK economy following the general election.
Shares in Marks & Spencer and Next have fallen by more than 2.5% this morning, making them some of the worst performing shares on the FTSE 100.
Investors are worried that retailers will suffer from the slump in the pound, which will drive up import costs and fuel inflation, hitting shoppers in the pocket and eating into real wages:
Stock broking firm N+1 Singer explain:
Depending on coalition talks, or if another election is needed, this picture could deteriorate further. Overall, this is negative for domestic consumer stocks, especially those reliant on foreign sourcing and an above average age demographic.
Just in: Theresa May is planning to ask the Queen’s permission to form a new government.
That suggest she’s got the support of the DUP for some sort of alliance....
#Breaking Theresa May to visit Buckingham Palace at 12.30pm to seek permission from Queen to form government, Downing Street spokesman says pic.twitter.com/zJLhHgSa5A
— Press Association (@PA) June 9, 2017
Our Politics Live blog has all the action:
S&P: UK risks downgrade
A second rating agency, Standard & Poor’s has just weighed in -- warning that Britain could suffer a credit rating downgrade.
It’s nearly a year since S&P stripped Britain of its prized triple-A rating, after the Brexit vote.
And S&P’s chief ratings officer, Moritz Kraemer, has told CNBC that a fresh downgrade is possible.
He said:
“We have the outlook on the ratings still on negative indicating that further downgrade or downgrades could be in the wings going forward.
“This depends pretty much on the further outcome of the Brexit negotiations and the reality that the U.K. will face outside the EU, which is still uncertain.”
Kraemer added that Britain is building up “quite a track record” of destabilising votes.
UK sovereign rating could be downgraded further, warns S&P https://t.co/HZFmXFwfM9 pic.twitter.com/5vDH29gOuL
— CNBC International (@CNBCi) June 9, 2017
Updated
Pound bounces back over $1.27
The pound has clawed its way back over $1.27, following reports that the Conservatives could form an alliance with the Democratic Unionist Party.
As explained earlier, the DUP have won 10 seats - enough to provide a wafer-thin working majority if added to the Conservative’s haul.
There are reports from Westminster that the DUP are considering a “confidence and supply” deal, to support the Conservatives on key issues (but not a full-blown coalition).
That has helped sterling recover from this morning’s eight-week low, but it’s still down over two cents, or 1.7%, since the polls closed.
Sterling up to $1.2738 on report of DUP confidence and supply agreement with Tories: pic.twitter.com/UGFnfsZNqk
— Ben Chu (@BenChu_) June 9, 2017
There are also signs that May is determined to stick on as PM.
Our politics editor Heather Stewart says:
Senior Conservatives confirmed that May has no intention of resigning and is instead working to form a government, most likely by making a pact with Northern Ireland’s DUP, which has 10 MPs. “We won the most seats and the most votes,” one Tory source said.
Sky’s Beth Rigby has also heard that May’s colleagues are sticking with her, for now anyway:
NEW: looks like the party falling in behind May. Senior Tory source says "too much big stuff going on right now to have a power vacuum" 1/2
— Beth Rigby (@BethRigby) June 9, 2017
Senior Tory source says: centre ground of party thinks we need to stick with her. No appetite for a 3 month long leadership race 2/2
— Beth Rigby (@BethRigby) June 9, 2017
Credit ratings agency Moody’s says it is watching events in Westminster, and will work out the implications for Britain’s credit rating.
Kathrin Muehlbronner, a Moody’s senior Vice President, says:
“Moody’s is monitoring the UK’s process of forming a new government and will assess the credit implications in due course.
As previously stated, the future path of the UK sovereign rating will be largely driven by two factors: first, the outcome of the UK’s negotiations on leaving the European Union and the implications this has for the country’s growth outlook.
Second, fiscal developments, given the country’s fiscal deficit and rising public debt.”
The EEF, which represents Britain’s manufacturers, wants the next government to rethink its Brexit strategy.
Terry Scuoler, chief executive of EEF, says:
“The Brexit negotiating strategy requires a careful rethink. Industry should be at the table, alongside whatever administration is formed, to help ensure we have the right negotiating position, which is something that’s been sadly lacking until now.
“The main parties have championed an industrial strategy for Britain and this must not be a casualty of the political turmoil. It is the best blueprint for business in the current circumstances.”
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Britain’s utility firms are emerging as a surprise winner from the election.
Shares in power and water companies have risen this morning, as the City concludes that Labour won’t be in a position to nationalise them. Theresa May’s pledge to cap bills may also be moving off the agenda.....
Market doesn't seem to be pricing a Corbyn policy platform. Utilities which would be losers from nationalisation are all up. pic.twitter.com/BteOyQnVs9
— Mike Bird (@Birdyword) June 9, 2017
There’s no chance of sterling being “strong and stable” anytime soon, warns Viktor Nossek, director of research at wealth manager WisdomTree.
He predicts the pound will suffer further losses as politicians try to deal with consequences of Theresa May’s failed gamble.
The pound has tumbled overnight, and this could be just the start, with volatility likely to remain elevated. Indeed, as the ramifications of this vote become clearer, the falls against the US dollar and other currencies could become more pronounced.
“Looking across markets in general, uncertainty will reign as parties try to form a government, so expect an increase in volatility in the near term.
Pound facing biggest one-day fall since Brexit vote
The pound has now hit an 11-week low against a basket of currencies.
It is on track for its biggest one-day fall in almost a year (since the aftermath of the Brexit referendum), Reuters reports.
Updated
Jake Trask, FX research director at foreign exchange and international payments firm OFX, fears the pound could have further to fall:
“UK Prime Minister Theresa May’s horrendous miscalculation to have a snap election has hammered sterling overnight.
After the Brexit vote and Trump’s win, the polls have again proved to be untrustworthy and sterling has tanked as result. A Tory majority was priced into the market but the reality of a hung parliament has seen the pound drop from $1.2950 to $1.27.
Theresa May has yet to make a statement over her future, however should she decide to step aside we may see the pound take another leg down”.
Updated
The British Chambers of Commerce has warned that Britain’s businesses will be damaged unless a functioning government is formed, fast.
Dr Adam Marshall, the BCC’s director general, says:
“The formation of a workable administration that can give voters and businesses confidence around economic management must be the immediate priority.
“Whilst companies have for many months done their best to screen out political noise in order to focus on their own operations, this result will prove much harder for UK businesses to ignore. The swift formation of a functioning government is essential to business confidence and our wider economic prospects.
Marshall adds that he can’t see how Brexit talks can begin until Britain has “clear objectives, an agreed starting position, and a strong negotiating team.”
Although Britain’s political turmoil has shunted the pound, it isn’t causing too much damage to other assets, reports Jill Treanor from IG’s trading floor:
So pound falling, at lowest level since mid-April says @JMahony_IG
— Jill Treanor (@jilltreanor) June 9, 2017
Gold is falling, yen is down "Something that felt like something of catastrophe ... no one seems to care apart from the UK" - @JMahony_IG
— Jill Treanor (@jilltreanor) June 9, 2017
The FTSE 250 index, which consists of small and medium-sized UK companies, has fallen by 0.5% at the open.
That highlights the concerns over the British economy today.
Outsourcing firm Capita are leading the fallers, down almost 5%.
FTSE 250, the domestically focused index, is down 0.5%
— Jill Treanor (@jilltreanor) June 9, 2017
...but more domestically-oriented FTSE 250 opens down 0.42% pic.twitter.com/gxVVnd90Jx
— Ben Chu (@BenChu_) June 9, 2017
FTSE100 up but more domestically focussed FTSE250 going in opposite direction
— Michael Hewson (@mhewson_CMC) June 9, 2017
Updated
FTSE 100 jumps at the open
DING DING: The London stock market is open, and the FTSE 100 has jumped by 85 points, or over 1%, to 7535 points.
That’s only 65 points away from its record high.
Multinational companies such as Diageo, Unilever and Burberry are leaving the risers - as they’ll all benefit from the slump in the pound.
But..there are plenty of losers this morning too. UK banks and housebuilders are among the big fallers, showing that the City is worried that the election will harm the economy.
Analysts at Liberum say:
We would expect UK Housebuilders’ shares to be weak following the surprise General Election result as the economic outlook has now become much more uncertain. Increased uncertainty would be expected to slow house purchases and make the sector less appealing.
Pound falls further as May hangs on
Theresa May’s decision to hang on as prime minister is worrying the City, and driving the pound lower, says Neil Wilson of ETX Capital.
“Sterling took another leg lower as looks like Theresa May will grimly cling on as PM despite a disastrous night for her.
The pound dipped half a cent, slipping from a fairly comfortable looking $1.27 to $1.265 in pretty short order, and was last trading at $1.264 as it is on course for its biggest fall since October.
May stepping aside creates uncertainty, but trying to stay as leader looks like it may even more unpredictable and uncertain for markets. Political gridlock is the key here and this doesn’t look good for sterling.
Sterling has failed to take reports that Theresa May is NOT resigning as a positive pic.twitter.com/vptrNLGjIR
— Ben Chu (@BenChu_) June 9, 2017
The CBI, which represents Britain’s businesses, has issued a magisterial plea to Westminster’s politicians to get a grip.
Carolyn Fairbairn, CBI Director-General, said:
“This is a serious moment for the UK economy. The priority must be for politicians to get their house in order and form a functioning government, reassure the markets and protect our resilient economy.
“Politicians must act responsibly, putting the interests of the country first and showing the world that the UK remains a safe destination for business. It’s time to put the economy back to the top of the agenda.
“For the next Government, the need and opportunity to deliver an open, competitive and fair post-Brexit economy that works for everyone across all our nations and regions has never been more important.
Looks like the grown-ups have woken up... https://t.co/gVbIrAzV1g
— Heather Stewart (@GuardianHeather) June 9, 2017
There’s no relief for the pound yet today, as the selloff intensifies.
Pound Sterling making session lows as Theresa May said to have no intention of resigning following UK election debacle. pic.twitter.com/Z5JoSt33Sg
— Holger Zschaepitz (@Schuldensuehner) June 9, 2017
Breaking: Political journalists are reporting en masse that Theresa May has “no intention” of resigning.
Break - PM has no intention of resigning - working to form a govt based on being largest party in seats and votes
— Laura Kuenssberg (@bbclaurak) June 9, 2017
Scoop: @theresa_may not resigning; talking to senior colleagues about how to form government
— Robert Peston (@Peston) June 9, 2017
BREAK: told PM has no intention of resigning
— Beth Rigby (@BethRigby) June 9, 2017
That’s sending the pound even deeper into the mire; now down almost three cents at $1.2660, a new eight-week low.
UBS: Brexit just became even harder
Swiss bank UBS fears that Britain’s exit from the European Union just became an even bigger problem.
Mark Haefele, global chief investment office at UBS, says:
We believe the Conservatives are ultimately likely to be able to form a minority government, but they have been severely weakened by the vote.
The unexpected outcome increases the threat of further volatility for sterling and UK assets. The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations, due to start on June 19.
A tighter political balance could make it easier for Eurosceptics within the Conservative Party and potential partners to prevent the government from offering the compromises needed to secure a trade deal. Brexit talks are now likely to be even more unsettling for markets, and the prospect of another election raises the risk of a delay, potentially leaving the UK without a negotiated exit settlement.
City experts: Could Conservatives team up with the DUP?
The chatter on the trading floors today is that the Conservative Party could form a coalition with the Democratic Unionist Party.
Chris Beauchamp, chief market analyst at IG, says:
Clearly, the fact that the Conservatives will be able to get past the 326 line with the help of Northern Ireland’s DUP is probably allowing markets, at least at this early stage, to keep a sense of perspective.
But... that would only create a very small majority. The Tories are on track for around 319 seats while the DUP have 10. That’s barely half of the 650 seats in parliament, so hardly the ‘strong and stable’ government Theresa May was looking for.
Kallum Pickering of German bank Berenberg says:
The early speculation is that the Conservatives and the pro-Brexit DUP (Democratic Union Party – N. Ireland) could enter a coalition.
But with 329 seats between them, the working majority would be very slim. No doubt there will be speculation of another Conservative-Lib Dem government. But the Lib Dems want another referendum on Europe. That would be a tough sell for the Eurosceptics in the Conservative Party.
Here’s the state of play, with just a handful of seats still to declare:
Bad news for holiday makers: The pound has just hit a new five-month low against the euro, at €1.1322.
That means one euro buys 88.3p.
Alex Stubb, the former Finnish prime minister, agrees that Brexit talks probably shouldn’t begin in 10 days time (as currently scheduled).
Looks like we might need a time-out in the #Brexit negotiations. Time for everyone to regroup.
— Alexander Stubb (@alexstubb) June 9, 2017
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The pound has hit a new eight-week low of $1.269, down over 2.5 cents since the exit poll landed at 10pm last night.
These photos from inside City firm ETX Capital show how traders were shocked by the election results:
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JP Morgan: UK may need to seek Brexit delay
Investment bank JP Morgan reckons that Britain will be forced to seek a delay in its Brexit negotiations.
Those talks are due to begin on 19 June, but as things stand there’s no certainty that Britain will have a stable government in place.
Malcolm Barr, economist at JPMorgan, writes:
“Perhaps the most obvious conclusion is that the likelihood of the UK needing to request a delay in the Brexit process has risen substantially, given the chance that political developments in the UK disturb what is already a time-compressed process.”
The prime minister (at the time of writing) identified this issue herself, in a tweet that hasn’t aged particularly well....
If I lose just six seats I will lose this election and Jeremy Corbyn will be sitting down to negotiate with Europe: https://t.co/OwbfDseOJh
— Theresa May (@theresa_may) May 20, 2017
The pound is losing ground against the US dollar as more City workers arrive at their desks in London.
Sterling has now hit $1.271, down almost two and a half cents. That’s close to the seven-week low struck around 1.30am today as election results flowed in.
Traders have just heard that Theresa May will give a statement at 10am.
UK PM Theresa May to speak at 10am local time...to stay or go??
— Carolin Roth (@CarolinCNBC) June 9, 2017
A wild election night in the City
Our City editor Jill Treanor spent election night in London’s hectic trading floors. Here’s how it unfolded:
Gasps greeted the exit poll at 10pm. The City had been expecting Theresa May to win the election - quite possibly with a landslide. The exit poll showing that a hung parliament was real possibility had an immediate impact on the pound.
It slumped as much as 2% in a matter of minutes -and has been treading water ever since. At World First, chief economist Jeremy Cook spent the evening explaining that it was ticking higher and lower as each seat came in.
Few wanted to believe the exit poll - and the early seats appeared to show that the poll had overestimated Conservative Party weakness.
As dawn broke, it became clearer that the exit poll had called the result much better than had first been expected.
At IG, the analysts reckoned the “shock of the result is not really translating into the market”.
This is in part because the City is trying to work out if Brexit will now be delayed or soft with possible talk that the UK will ask to remain in the single market. The loss of seats for the SNP may also help take Scottish independence off the table.
Waiting for the stock market to open at 8am, Samuel Tombs at Pantheon Macroeconomics said:
“Britain’s inconclusive election means it is a question of when, not if, the country heads to the polls again in the near future”.
The slide in sterling meant the FTSE 100 was being called higher. But at IG they were also ready to watch the FTSE 250 index - made up of domestic stocks and less protected by sterling’s slide.
Sometimes, we just have to tell it like it is. The pound now below 1.2750 v dollar. :(#electionday2017 #fx pic.twitter.com/Gyn4A19X19
— ING Economics (@ING_Economics) June 9, 2017
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Dean Turner, economist at UBS Wealth Management, predicts that the pound will be very volatile as investors come to terms with a hung parliament.
“Markets were not primed for the prospect of uncertainty today. The dramatic change to the political and economic status quo will be unsettling to investors.
“The purest way of playing macro-political risk is through sterling, and we may see a good deal of the markets’ worries played out through currency. The short-term outlook points to higher volatility. In the first instance, it is likely that the pound will give up the bulk of its post-election announcement gains.”
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Investment bank Citi have predicted that Theresa May will step down as prime minister, and believe that a second general election is possible.
In a research note, they say:
“A period of political uncertainty lies ahead.
Following what is widely regarded as a poor campaign and failure to translate a strong lead in the polls into a larger majority in the Commons, we expect May is likely to resign.”
The pound could suffer further heavy losses following Theresa May’s election disaster, warns Lee Hardman, currency analyst at Japanese financial group Mitsubishi UFJ .
“The consensus that this election was all about consolidating Theresa May’s leadership is now shattered. Market hopes were pinned firmly on a stronger mandate as the UK government begins Brexit negotiations. Without question, there is volatility ahead. The market is desperate for any indication of what a Brexit deal might look like.”
“If negotiations go well, this could translate into a 1.30 to 1.35 range for the pound versus the dollar. But if the market anticipates a hard Brexit, the pound could drop to 1.20 to 1.25 against the dollar.”
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Although the pound has slumped, City traders are actually expecting the FTSE 100 index of blue-chip shares to rise slightly.
That’s partly because the slump in sterling is good for multinational companies listed in London.
My colleague Jill Treanor is on the trading floor of IG in London, and reports:
So looks as if FTSE could open higher @IGcom tell me - possibly 20 points higher than Thursday's close
— Jill Treanor (@jilltreanor) June 9, 2017
So this the £v$ on screens at @IGcom Big spike down is when the exit poll was published. Just waiting now ... pic.twitter.com/XHKcVcswAQ
— Jill Treanor (@jilltreanor) June 9, 2017
Introduction: Pound slumps after election shock
Good morning.
The people have spoken, sending the pound sliding as a wave of confusion ripples through the financial markets.
Theresa May’s decision to call snap general election has backfired in the most spectacular fashion. With most seats declared, the Conservative Party have failed to win the landslide majority they were aiming for.
Instead, Britain is waking up to a hung parliament.
Updated proejction - Tories 318, Labour 262, SNP 35, Lib 13
— Laura Kuenssberg (@bbclaurak) June 9, 2017
Sterling plunged to a seven-week low as soon as the shock exit poll was released at 10pm last night.
It has been buffeted through the night as traders digest this latest political shock, wiping off two cents to $1.2750.
It also suffered heavy losses against the euro, down 1.5% to €1.138.
As Jeremy Cook of World First put it, during a gruelling all-nighter:
“Currencies like governments with mandates – and don’t like delays to Brexit.”
This chart shows the initial slump, and the volatility since:
It’s been a night of wild drama, perhaps best summed up by Labour claiming the usually safe Conservative seat of Canterbury for the first time ever.
Right now there are rather more questions than answers. Theresa May’s position as prime minister looks insecure, even though the Conservatives will be the largest party.
Will Britain need a second election within months? How can the UK government now push for a ‘hard Brexit’, given this result? Could we even see a second referendum on Britain’s membership of the EU?
One thing’s sure; it’s been quite a night for Jeremy Corbyn....
We’ll be tracking all the financial reaction through the day.
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