9 Min Read
LONDON (Reuters) - Britain plunged into political turmoil on Friday as election results looked inconclusive, with wounded Conservative Prime Minister Theresa May vowing to provide stability and her Labour rival Jeremy Corbyn saying she should step down.
Following are comments from financial market analysts and traders as results come in.
"The bigger picture here is that what the consensus was thinking about in terms of the smooth, phased-in, hard Brexit may now need a re-think. That means there could be a lot of volatility.
He said that sterling could eventually fall below $1.25.
"Closer to $1.20, I still see sterling as a cheap currency, so there is value in sterling. But I think people are going to hold off for the time being and sterling is likely to probe to the downside."
"It's puzzling. It really is. Everybody is looking for room to the downside on sterling on this move, but it's not happening. The banks are out there calling for 1.24. So tell me, who's on the bid here at 1.27 and supporting it? I think I'm going to stick to my guns and think it's going to drop."
"It’s very hard to see Corbyn as PM based on the arithmetic so far. Tories are very likely to form the backbone of the next government. If Ulster unionists hold the balance of power, there will be no Brexit dilution at all.
"Even in the unlikely case Corbyn becomes PM, questions about fiscal restraint under Labour (and economic policy more generally) may end up hurting sterling anyway regardless of Labour’s generally pro-EU stance. Admittedly, a Tory-Lib Dem coalition has a decent chance of securing a soft Brexit, but it is a very unlikely pairing given their Brexit stances seem irreconcilable."
CLIFF TAN, EAST ASIAN HEAD OF GLOBAL MARKETS RESEARCH, MUFG
"Investors shouldn't only focus on sterling as a way to play the election. Japanese equities may be vulnerable and could initially sell off due to the uncertainties of the poll.
"The dollar continues to gain some ground, which suggests the UK results not only reflect Brexit sentiment but are also a judgement on domestic politics. We predict there will be a Nikkei sell-off until the London market opens. If we see the dollar continuing to rally regardless of sterling, we'll know the election is having an international impact."
"If the momentum of the votes begin to shift in favour of what the preliminary polls have suggested will be a hung parliament, the Pound will be at risk to retracing all of its gains that it has made since Theresa May unexpectedly called the election. This ultimately means that the Pound could drift to 1.25 within the next few hours if market uncertainty heats up."
JASON WARE, CHIEF INVESTMENT OFFICER AT ALBION FINANCIAL IN SALT LAKE CITY, UTAH:
"This is an exit poll... there is a lot to figure out over the next few hours. The pound is getting hit in the aftermarket and that's probably a symptom of uncertainty.
"If there are any changes to Brexit it's probably a more globalized, softer Brexit which could be positive if anything. The biggest concern for markets last year when we went through Brexit was this could be the beginning of the end of the cooperation of the European Union and euro zone ... and that the UK could go into recession. But if we get more of a softer Brexit or more of a globalist stance from the UK...its good for Europe, the UK and U.S. assets."
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ, NEWPORT BEACH, CALIF:
"With initial exit polls pointing to the Tories losing seats and that Prime Minister May’s early election gamble is not paying off, markets are pricing in a more complex outlook for policy implementation, including Brexit."
JOE O'LEARY, SENIOR FX TRADER AT SILICON VALLEY BANK IN SANTA CLARA, CALIFORNIA
"There's certainly some downside risk for the pound if the exit poll bears out. Theresa May's position as PM looks more uncertain than it did earlier today. Right now I expect mostly volatility. You think there would be some strengthening in the safe-haven currencies, but the dollar/yen have not moved much. It might just be because of thin trading and some scepticism about the exit poll."
PAUL NOLTE, PORTFOLIO MANAGER AT KINGSVIEW ASSET MANAGEMENT IN CHICAGO:
"We could see probably a day or two of jumping around. We saw this with the Brexit vote - that was very unexpected. We got the selloff and the markets rallied back.
"So initially it could be a negative but it also depends on the makeup of Parliament.
"The political and the economic are separate here. While it's politically interesting, like Brexit, the French election, the U.S. election etc, it really is going to start to depend on what they're able to do economically and whether they're going to able to push through any legislation, change anything etc. And that we have no idea on."
STEPHEN SIMONIS SR., CHIEF CURRENCY CONSULTANT, FXDD GLOBAL, NEW YORK
"It is vital to realize that this move happened at 5 p.m. NY time after markets have closed. This is an extremely illiquid time. And while one can understand why GBP would be lower on the Tories’ lack of a majority, this move seems extreme. Certainly, electronic stop losses were triggered along the way to further exaggerate the move.
"Much lies ahead for England with the negotiations coming up and the recent terror attacks continue to be an ongoing issue. In the short term, the drop seems extreme and we expect a bounce back up in the pound; in the longer term we can see the pound pushing lower towards 1.2500."
"Should the poll prove accurate, it is likely that the pound will give up the bulk of its post-election announcement gains. After this, retreating back to the low 1.20 levels versus the U.S. dollar is a very real possibility. Nevertheless, sterling has steadied following the initial sell-off and there are few signs that anxiety has spread into other markets just yet."
"This exit poll is a thunderbolt that leaves only two outcomes realistically in play: a slender Tory majority or a hung parliament. The exit poll’s biggest error in the last two decades was in 2015 when it under-predicted the Conservatives’ seats by 14. We see the risks to the seat projection as evenly balanced, given that its estimate was slightly too high in the four previous elections."
"The market will be praying that this exit poll has got it wrong. Currency volatility is the best proxy for market fears. If the Conservative ship is sinking then the market will be looking for a life boat."
ALAN CLARKE, HEAD EUROPEAN FIXED-INCOME STRATEGY, SCOTIABANK
"There has got to be a good chance that (May) stands down as prime minister in this environment. The betting websites have Boris Johnson as 2:1 to be the next prime minister after Theresa May."
"The economy looks set to face a period of uncertainty about the outlook for policy, Brexit and the possibility of another election. Admittedly, the exit poll could yet be proved wrong."
KATHY LIEN, MANAGING DIRECTOR, BK ASSET MANAGEMENT, NEW YORK
"It wouldn’t be out of the realm of possibility to see pound/dollar drop below $1.26 or even $1.25. All of the sterling crosses are down. All of that is significant."
"This is the hung parliament territory, it's also what we had for the last election pretty much, but then the real numbers on the night came up with a majority, so it's not over yet, folks. But we possibly have the Labour + Scottish National Party + Liberal Democrat coalition possibility in play here. But it’s still hard to form a coalition with Labour + others here, given their total only reaches the same number more or less than that of the Conservatives."
"A hung parliament is the worst outcome from a markets perspective as it creates another layer of uncertainty ahead of the Brexit negotiations and chips away at what is already a short timeline to secure a deal for Britain."
Reporting by Noel Randewich, Richard Leong, Jennifer Ablan, Megan Davies and Dion Rabouin in NEW YORK, Patrick Graham in LONDON, Masayuki Kitano, Sonali Desai, Nichola Saminather and Vidya Ranganathan in SINGAPORE; Editing by Mark Trevelyan