UK election

UK Election Briefing – What You Need to Know

A quick rundown of what’s going to happen with the UK election and how to trade it

What’s expected?

The current opposition Labour party is expected to clean up on the election with a big majority.
The current ruling Conservatives are expected to do humiliatingly badly.
The outsiders, The Reform party could even put the Conservatives in the shade.

How will the election and results work?

Throughout tomorrow, voters will be casting their ballots between 7am and 10pm (BST).
Once polls have closed the votes will be counted and announced all through the night.
The earliest market reaction will come from the North East. There is a long running rivalry between Newcastle and Sunderland to be the first to declare their counts, and announce the first results. These results can come out between 60-90 mins after polls close. In fact, over the Brexit vote, these first results caused some of the biggest moves in GBP of the whole night.

Once we’ve had a taste of those, the rest of the reuslts will dribble in over the course of the night and into Friday morning.

What will GBP do?

There’s two things investors and traders want from elections.
1. Stability.
2. Policies.

You have to take elections in two contexts regarding the above.

Firstly, the stability aspect is a short-term trade. A majority government is good right away, while the ‘policies’ aspect can be more longer-term (when real spending/tax plans/budgets etc are put together).

Given how Labour is expected to get a big majority (of some 150+ seats), the price risk is if they fall significantly short of that. A low majority means it might not take a lot to close that gap in future by-elections, so puts a bit of pressure on the ‘stability’ aspect. That might not be massively negative for GBP but it might take some of the euphoria out. Obviously, if there’s something much worse, like a hung parliament, that would be the worst outcome for GBP and UK assets. It’s low risk but not zero, and we have to know that as traders.

So, a big majority could be positive for GBP in the first instance, with the main move likely when those two early results come in.

From there, it’s a case of seeing what’s coming from the new government over the days and weeks ahead and whether the market likes it or not.

As far as the size of any price moves is concerned, we’ll see a bigger move down on a negative shock, than a move up on a confirmation of what’s been expected for weeks.

If you’re looking to trade it, or already positioned in any GBP or UK assets, know your risk points on the clock, especially if you’re not going to be at your desk over it. As always, do your chart homework, pick your levels and ranges and react according to what they do. Also, be mindful that we still have the second French election at the weekend, and that’s likely to be a real mess with a possible hung parliament. That could elicit some flows into the UK if there’s political stability here, whilst there’s instability in France.

 

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