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UK shares fall, pound jumps on surprise election announcement


markets

UK shares fall, pound jumps on surprise election announcement

Europe’s stock market indexes – which were already under pressure – slid further on the UK election announcement with investors worried that this adds to political uncertainty in the region.

London’s benchmark FTSE100 tumbled to its lowest in more than seven weeks – down 2.46 percent at the end of Tuesday trading sesssion. All but a handful of the top 100 stocks were in the red.

“If we have a stronger government pushing for a ‘hard’ Brexit, markets won’t like that. But on the positive side, you would have more stable government for the UK,” said David Stubbs, global market strategist at JP Morgan Asset Management.

Mining and energy companies had been big losers due to lower metals and crude-oil prices even before May’s announcement.

The snap election comes on top of worries about the outcome of the French presidential election, and concerns about Syria and North Korea.

Sterling strengthens

The pound surged to its highest level since early December against the US dollar, up 1.5 percent, which also had a negative effect on leading shares as most of those companies get a majority of their earnings in foreign currencies from exports.

As a result the weak pound has helped push share prices to record highs in recent months.

Foreign exchange traders said the election could eventually lead to a stronger sterling if May’s majority was strengthened and policy became more predictable.

“That could reduce some of the political noise,” said Eric Viloria, currency strategist at Wells Fargo.

Deutsche Bank said the surprise election call is a “game-changer” for the currency, and that it will raise its forecasts for the pound in the coming days.

But now British shares are set for their worst one day drop since the aftermath of the Brexit referendum last June.

Hit heavily

Mining companies Anglo American, Glencore, Antofagasta, Rio Tinto and BHP Billiton dropped as Chinese iron ore futures fell to three-month lows, with oversupply worries weighing on steel prices.

Oil major BP was also a top faller, down 3.4 percent as the price of crude slid. Brent crude reached an 11-day low after a US government report indicated rising production.

Business reaction

CAROLYN FAIRBAIRN, DIRECTOR GENERAL OF THE CONFEDERATION OF BRITISH INDUSTRY

“Distraction from the urgent priorities of seeking the best EU deal and improving UK productivity must be kept to a minimum.”

ADAM MARSHALL, DIRECTOR GENERAL OF THE BRITISH CHAMBERS OF COMMERCE

“Many business communities will understandably be concerned that attention will inevitably shift from the economy and the intricacies of leaving the EU to a potential election campaign.

“Firms will want to be reassured that the key challenges facing the economy will be front and centre throughout any election period.”

TERRY SCUOLER, CHIEF EXECUTIVE OF MANUFACTURING ASSOCIATION EEF

“We have significant negotiations to undertake with our partners in the rest of Europe and, doing this with a fresh and stable mandate from the country can only provide greater certainty about the future direction of travel for policy, and the potential to seek the best deal possible for the UK.”

MALCOLM BARR AND ALLAN MONKS, ECONOMISTS AT J.P. MORGAN

“One implication of the holding of a new general election is that it may open up more negotiating time under Article 50.”

“The point at which Brexit occurs can be moved back on the basis of unanimous agreement. With a new electoral mandate in place, a May-led administration could expect to govern until 2022. We had always thought the need to ‘deliver Brexit’ before a 2020 general election meant that negotiations would not be extended in 2020 even if there was some mutual interest in doing so.”

GAIL CARTMAIL, ACTING GENERAL SECRETARY OF UNITE UNION

“The country now has a choice between whether to vote for a Conservative party which is determined to pursue a hard, disastrous Brexit and is wedded to continuing with miserable austerity and destroying the rights and living standards of working people, or a Labour party which is presenting real, positive change based on a fairer economy and determined to ensure that on leaving the EU, jobs and communities can thrive.”

LUKE BARTHOLEMEW, INVESTMENT MANAGER AT ABERDEEN ASSET MANAGEMENT

“The election should hand Theresa May a much bigger mandate to stand up to the harder-line, anti-EU backbenchers who currently hold a disproportionate sway over her party’s stance on Brexit.

“That would be welcomed by financial markets. There’s also a decent chance of some volatility now with imminent elections in both the UK and France.”

SIMON DERRICK, HEAD OF GLOBAL RESEARCH AT BANK OF NEW YORK MELLON IN LONDON

“For the moment at least it is not being seen as particularly a negative. I guess people see that this may give Theresa May a better majority. It is a politically astute move and it should provide more stability going over the immediate aftermath of the exit from the EU.”

DEAN TURNER, ECONOMIST AT UBS WEALTH MANAGEMENT

“The muted response in sterling, gilts and UK equities suggests markets are savouring the possibility of much-needed clarity around the government’s Brexit negotiation stance.”

ALAN CLARKE, ECONOMIST AT SCOTIABANK

“It’s slightly unfortunate timing as Q1 GDP might be disappointing. But it will be worse later in the year so it is a ‘now or never’ decision.”

IG GROUP, SPREAD BETTING COMPANY

“The current prices in the markets reflect May’s and the Conservatives strong leads in polling data. They show a 90 percent chance of the Conservatives winning the most seats and an 87 percent chance of a Conservative majority.”