According to estimates just released, the United Kingdom general election has ended in disaster for the Conservative party. An exit poll for the BBC, ITV and Sky predicts that the Tories will win 316 seats, Labour will fall to 239, the SNP 58 seats, and the Lib Dems will lose all but 10 MPs, and Ukip will be left with 2. This leaves Theresa May’s government 10 seats short of a majority, suggesting that a hung Parliament beckons ahead.
The Great British Peso is falling sharply as we go to pixels, plummeting more than 1.5 percent in the seconds after the poll’s release. With more accurate numbers due to come in through the evening, traders will be seeking to manage two-way market risk in the pound.
While some uncertainty remains with respect to the final outcome, exit polls from British broadcasters have traditionally been incredibly accurate, often missing the ultimate result by less than five seats. Since the early nineties, true exit polls have never got the winning party’s seat count wrong by more than 15 – so while it is possible for the Conservatives to edge up as we move through the country’s 650 constituencies, the odds of success are dramatically diminished.
It appears that during a campaign marred and interrupted by two terrorist attacks, May was unable to capitalize on her strength in domestic security issues, diminishing the Conservative lead while managing to lose a significant number of undecided voters. With more pressure coming from both a strong opposition and the euroskeptic wing of the Conservative Party, Brexit negotiations are likely to progress in a much more difficult manner, with acrimony on both sides making Theresa May’s position much more difficult. A collapse in discussions now represents a clear and present event risk for the pound, and a rise in political risk premia is helping to send global markets into a tailspin.
Bottom Line: Theresa May appears to have lost her electoral gamble. She is now heading into some of the most difficult negotiations the United Kingdom has ever faced without the backing of a large chunk of the electorate, and without the support much of her own party. Major risks lie ahead for the pound, and for risk-sensitive assets globally.
Markets will be turbulent throughout the evening – we will update you as firmer numbers arrive later tonight.
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