The FTSE 100 started out ‘strong and stable’ as it was up over 1% shortly after the opening bell, but some of the gains have already been handed back.

The collapse in the pound in the wake of the hung parliament is the main driver behind the rally in the FTSE 100, as the index has such large international exposure. Meanwhile, the FTSE 250, which is a far better gauge of the British economy, is down 0.7%.

Prime Minister May called this general election with the view of expanding her majority in order to shore up support for the Brexit negotiations, and now that she failed to obtain a majority, she has cast serious political uncertainty on the UK. There is a possibility that the Conservatives may be able to form a minority government with the confidence and supply of the pro-Brexit Democratic Unionist Party (DUP) from Northern Ireland.

With the UK currently in political limbo, the pound has plunged against the US dollar and the euro due to the lack of a Conservative majority. What should have been an opportunity for the Conservatives to strengthen their political position has now left them vulnerable, and currency traders are taking advantage of this.

Adding insult to injury, the UK revealed a 0.2% increase in manufacturing production, and a 0.2% increase in industrial production in April, against a consensus for a rise of 0.8% and 0.7% respectively. 

We are expecting the Dow Jones to open up 33 points at 21,215 and the S&P 500 to open at 2436, up 3 points. Traders will be focused on the testimony from the former head of the FBI, James Comey, later today. Mr Comey’s statement could cause trouble for President Trump, depending on what details about the Russian involvement in the US election came out. 

 

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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