Investors Focused On Super Thursday

Traders have a lot to digest today and they need to be on their A game to play this right. Voters over in the UK are going to vote for their new Prime Minister, the European Central Bank will deliver their verdict about their monetary policy and James Comey will testify in front of senate.

It is difficult to say which event will have create more volatility but it would be sensible thing to be ready for all kind of outcomes. The outcome of UK elections does matter because the new Prime minister will have arduous task ahead – the negotiation process of Brexit. Moreover, the winning candidate is not going to have a glittering economic prize because the country is facing significant slow growth, tepid wage gains and a currency which has its back broken and productivity issue which is cursed.

How markets would react

If Theresa May wins with majority, both Sterling and the FTSE would like that outcome as she will have to rely less on hard Brexit. Winning the election with same majority that she had or less, would make her position weaker as hard Brexit becomes more apparent. We all know that the pound has fallen every time the word hard Brexit is mentioned. If for any reason, Labour wins the elections, markets would like the idea of higher spending under the labour government. But the upside may be limited because they also have many thorny issues which many would not like; higher corporate tax, a financial transaction tax, taxes on executives- this would not give good signal for a country which is leaving the EU

Hung Parliament

Theresa May can surely not blame someone else if she tastes the bitter taste of loss in the UK's General election on the 8th of May. Call for election was really a double edge sword. Although, the odds are still favouring the very fact that she could win the elections, but what we have learned this time from different polls is that it is the turn out ratio this time which matters the most.

If we have a hung the Parliament, leaving a second election likely, the pound will surely take a hit and equities too. Uncertainty is not good for both.

Naeem Aslam
Chief Market Analyst
ThinkMarkets UK Ltd

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