Scott Jamieson, Head of Multi-Asset Investing at Kames Capital, said:
“A general election in 2017 may have been 4/6 at the bookies but May’s announcement this morning took me by surprise. The immediate market reaction has to been to move in directions that reverse the trends since the EU referendum last year; equities are falling and Sterling is rising.
“A few weeks ago and after the Dutch election result, concerns surrounding political risks in Europe had started to ease: the Dutch had rejected populism and Le Pen looked set to lose to a relatively mainstream candidate. All that has changed with the communist Mélenchon emerging in France to threaten the prospect of an extreme right wing/left wing run off in the second round of the French election. Now the people of the UK have another chance to voice their discontent too.
“The understanding surrounding the UK election on 8th June is that this is Prime Minster May’s attempt to secure the commanding majority she needs to ensure that Parliament will not scupper the Brexit deal to come. This is not without risks. In particular the Liberals may emerge as the party of choice for the remainers – if ever there was going to be a one issue election this could be it. If so, then the Prime Minister may not secure the majority she seeks – she surely would then have to resign. What then?
“Sterling has already retraced the second leg down that occurred last October when May made clear her preparedness for a hard Brexit. In the short term a further rally to levels prior to June 23rd’s referendum looks highly unlikely but the scale of the market ‘short’ in Sterling is significant. Risk reduction ahead of what now promises to be an eventful quarter could see Sterling rise further as investors simply close down positions.”