UK’s Prime Minister, Theresa May’s surprise announcement may have caught markets on the hop and sent the EU into a spin but it seems they are not overly concerned by the prospect of a snap election in the UK. The muted response in sterling, gilts and UK equities suggests markets are savouring the possibility of much-needed clarity around the UK’s Government’s Brexit negotiation stance.
If the general election is held the belief is that it’s highly likely the Conservatives will increase their majority and firm up the future direction of Government policy, particularly in regard to Brexit. On her recent visit to Malta, the Prime Minister has been softening her rhetoric on Brexit in its expected for her to use this election to secure a mandate for future direction of the talks.
For investors it does add another layer of complexity to an already uncertain picture for UK and European assets. Volatility is likely to remain elevated over the coming weeks. Activity in options markets suggests forex traders are not especially agitated by the prospect of another UK election less than 12 months after the Brexit referendum. The sterling/US dollar three-month volatility gauge, which will cover the June general election, is up 4,1% to 8,748. The average over the past year is 11.25 and the measure peaked at 18.65 ahead of the Brexit vote in June.
Theresa May’s announcement today is a strong, decisive and important step along the road to delivering a Brexit that works for both the UK and the European Union. A decisive victory for the Conservative Party will provide clarity for both sides in the forthcoming Brexit negotiations, create greater unity within the United Kingdom and provide the basis from which to secure a deal that is in the best interests of people in the UK and across the EU.
EXANTE‘s Communication Director, Patrick O’Brien
