The announcement of the British Snap election by Prime Minister Theresa May looked like a smart move in April, as it was a good way to stabilize the Conservative Party’s power following a stormy Brexit campaign, and the aftermath of the shocking referendum itself. Financial markets welcomed the announcement, as British stocks rallied after an initial spike lower and remained strong ever since.
The performance of the FTSE 100 Index since the announcement
The latest opinion polling trends
Now, with only a couple of nights before the election, things aren’t looking so good for the ruling party, as the polls are getting very close, with the Labour gaining ground across the board, even after the terror attacks in Manchester and London. The rally in the Pound stalled at 1.30 against the USD, and the Euro has been steadily gaining ground on the currency amid the growing uncertainty regarding the results.
The performance of the EUR/GBP pair Index since the announcement
With some of the polls now in the “too-close-to-call” territory, there is a slight chance of the Torys even losing the election, but that would still be a huge surprise. The real question is whether or not the conservative party will have the majority after the referendum.
The Possible Effects
Traditional safe-haven assets like gold and the Yen are rallying before the election, but that also has to do with other global events, not solely the British developments. That said, a slight dip in those assets is expected in the case of a Tory majority, while a hung parliament or a Labour victory would likely cause a sell-off in risk assets globally and especially in the UK, with the Pound and stocks being negatively affected. While it looks unlikely that any result would turn around the Brexit process, markets usually fall on uncertainty.
As of now, prediction markets give around 75% chance for a Conservative majority, but as it happened in the case of the Brexit vote, polls might be misleading and the last-minute trends could lead to huge surprises. With 650 seats up for grabs at the election, the party would need 326 (currently holding 330) to retain its majority.
Stay tuned for more updates as we get closer to the results of the referendum!