The general election has resulted in the incumbent Conservative party falling short of a majority. An informal arrangement is therefore being negotiated with the right-wing DUP to secure their 10 seats in Northern Ireland and avoid the pitfalls of a formal coalition. Nevertheless, the DUP could try to influence Brexit at the margins because they would like border controls returned. Brexit negotiations will commence on 19 June.
The loss of seats for the Scottish National Party make it less likely that a second independence Referendum will be sought.
So far, UK markets have moved in similar patterns to the day following the Referendum last year. Sterling is down 1.7% against the US Dollar to $1.27 and is down 1.2% against the Euro to 1.14. The FTSE 100 was up 0.7% by midday to 7,498, reflecting the benefits of this currency depreciation for multinational companies. GlaxoSmithKline, Diageo and Unilever have all made gains in trading so far today. In contrast the FTSE 250 was down 0.4% as the market digested the implications for more domestically focused companies. This has also influenced banks, housebuilders and retailers like M&S and Next within the FTSE 100.
10-year gilt yields are broadly flat having gained just 3 basis points from 1.03% to 1.06%. This reflects the more moderate government spending plans of the Conservative party.
In general we don’t reposition portfolios ahead of binary events like elections. We believe our focus on active management and good quality businesses should help to insulate from any turbulence when compared to the broader market. We will be getting updates from a global and a UK equity manager next week which will complement our in-house research as the election result plays out.
Chief Investment Officer