Whilst exit polls bring about a certain degree of clarity, the moment Blyth Valley went blue just after 11:30pm it was obvious this wasn’t going to be any normal election night. As we sit and digest the full implications of the election result, it is impossible not to conclude that this result is extraordinary no matter your political leanings.
Right now, in the aftermath it is important for us to cut through the rhetoric and political posturing to get to the heart of what matters to investment markets.
A strong majority for the government brings with it clarity, something that markets have been longing for. Investors, both at home and abroad, have largely sat on their hands waiting for the day that the country could move forward with some degree of certainty, which had stymied investment and had put the UK at a significant discount to the majority of its developed market peers.
Initial market euphoria on the morning of the result has been refreshing. Sterling has strengthened substantially and the FTSE 100, that all too often finds itself moving in the opposite direction to the currency due to the prevalence of overseas earners it counts as its constituents, rallied over 1% (nearer 2%). Whereas the FTSE 250, a much more domestically focused index, found itself up over 5% in early trading. The removal of the risk of market unfriendly policies also brings good news for specific sectors, with utilities, property and banks all rallying strongly.
It may be difficult for investors not to get dragged along for the ride, assuming that this election result means that everything is now rosy in the UK. We must, however, remember that this is not the end of the Brexit process, it simply means that the starting pistol has been well and truly fired.
Volatility is likely to continue as Brexit is negotiated. We also need to remember that the UK is only a small proportion of global GDP production and economic activity. In reality, the US/China trade deal is far bigger and the impact on global markets much more significant from this trade deal.
The top geo political risks include major cyber-attacks, rising authoritarianism and trade wars.
However, lets enjoy today as this was the right outcome for markets and the City of London.