This morning’s YouGov poll has certainly put the proverbial cat among the pigeons when it comes to what may result from next week's UK general election vote on 8 June.
The survey has suggested that the Conservatives could lose seats in next week’s election, with the result that we could end up with a 'hung parliament'.
Recent polls have shown that the Conservative lead has narrowed, although the divergence in this poll is in stark contrast to other polls which all have the Tories in the lead, and rather raises the question as to whether YouGov have taken early advantage of the Lib Dems pledge to legalise cannabis to arrive at their survey results.
The outlying nature of the YouGov poll may help explain why the decline in the pound has found some support after some early losses this morning, with a new Panelbase poll giving the Conservatives a 15 point lead. We’ll certainly know for sure next week, but the reaction of the pound would suggest that the market is not sufficiently positioned for such an outcome, is adjusting accordingly, and is now prompting many to consider the outcome a Corbyn victory might have on financial markets.
While this still remains the 'low risk' scenario, the fact that polling companies have been less than reliable in recent months is prompting some hedging of sterling downside risk, amid speculation of what Labour’s likely Brexit stance might be.
Putting to one side speculation that we might see a so-called softer Brexit, preserving single market access and free movement, which might not be so sterling negative, the offset is that a hung parliament outcome would probably see an unstable coalition, and some of the more radical manifesto plans could well see the light of day, including the renationalisation plans of utilities and rail which could result in further large scale sell-offs in these sectors.
There is also the question of fiscal credibility and on that count the Labour party still has a significant credibility gap, particularly given recent policy gaffes from various senior Labour shadow cabinet members, including Jeremy Corbyn himself yesterday.
While the Conservatives talk about the prospect of a "coalition of chaos”, the fact that it is now a much more realistic possibility is down to their election strategy having been an absolute shambles. Far from being “strong and stable”, it has shown that Theresa May, while still favourite to win, is probably the best of three very average candidates.
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Heightened market volatility is likely over the election period, which could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.
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