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Global markets: Sterling shaken by UK election shock, fallout limited elsewhere
June 8, 2017 / 9:57 AM / 6 months ago

Global markets: Sterling shaken by UK election shock, fallout limited elsewhere

SYDNEY (Reuters) - Sterling sagged in Asia on Friday as British elections left no single party with a clear claim to power, sideswiping investors who had already weathered major risk events in the United States and Europe.

FILE PHOTO: A one pound coin lies on a Union Flag in a photo illustration shot May 3, 2017. REUTERS/Darren Staples/Illustration/File Photo

With the majority of seats counted in the snap vote, British Prime Minister Theresa May had no way to win an outright majority in parliament.

The shock outcome saw the pound shed as much as three U.S. cents at one point, or close to 2 percent, on fears the political turmoil could delay, and complicate, Brexit talks, which are due to start in 10 days.

Yields on 10-year gilts fell 3 basis points to 1.00 percent, but FTSE futures recouped early losses and turned 0.3 percent higher, perhaps on hopes that a weaker pound would help the economy.

The damage was limited elsewhere, with E-mini futures for the S&P 500 edging up 0.1 percent.

Japan’s Nikkei added 0.4 percent and MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.2 percent.

“This is messy for the UK economy and its Brexit negotiations and hence is a negative for the pound and share market,” said Shane Oliver, chief economist at AMP.

“But the UK is just 2.5 percent of world GDP and it’s hard to see significant implications for global investment markets.”

The rot started when an exit poll showed the ruling Conservatives could fail to win a clear majority when markets had expected a handy victory.

The BBC forecast the Conservatives would hold a reduced 318 seats in the 650-member parliament, following a big swing to the left-leaning opposition Labour Party. For the latest updates, click.

Betting agencies were already taking wagers on whether May would still have her job by the end of the day.

“We could be heading for a period of market uncertainty, which will be compounded by the elephant in the room this time around -- the forthcoming Brexit negotiations,” said Michael Judge, head of corporate dealing at broker OFX.

“Investment decisions are likely to be put on hold for the short to medium term -- certainly until we have clarity on who governs the UK. At that moment, that is anybody’s guess.”

By 0515 GMT, sterling had shed 1.6 percent to $1.2752, having earlier carved out a two-month trough of $1.2693. It was also down 1.4 percent on the euro at 87.80 pence.

The Japanese yen gave up early gains and eased to 110.20 per dollar. The euro was little moved against the U.S. dollar at $1.1204.

The single currency had slipped overnight when the European Central Bank cut forecasts for inflation and said it had not discussed scaling back its massive bond-buying campaign, sending bond yields to multi-month lows.

NO SMOKING GUN

Overnight, Wall Street had seemingly judged the testimony of former FBI director James Comey was not life-threatening to the administration of President Donald Trump.

Comey accused Trump of firing him to try to undermine the investigation into possible collusion by his campaign team with Russia’s alleged efforts to influence the 2016 election.

“I think the market is taking less of an alarmist review of this situation because there is no smoking gun here,” said Jefferies & Co money market economist Thomas Simons.

“So it’s not particularly impactful for thinking about... Trump’s economic agenda to go through.”

The Dow rose 0.04 percent, while the S&P 500 gained 0.03 percent and the Nasdaq Composite 0.39 percent.

In commodity markets, spot gold was 0.3 percent lower at $1,274.80 an ounce.

Oil prices remained subdued with Brent having settled at its lowest since Nov. 29, the eve of an OPEC production cut deal.

U.S. crude futures edged down a cent to $45.63 a barrel, with Brent crude flat at $47.86.

Editing by Kim Coghill

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