Ever since a General Election was called in the United Kingdom back in October, the most difficult job faced by newspapers within the country seems to have been trying to make it sound unpredictable. Boris Johnson’s Conservative Party held a commanding lead in the polls on the day the election was announced and still holds a commanding lead now, with only days to go until the British public head to the polls.
If the contest had been presented as a dull and predictable affair, the British press would have had nothing to write about for the past several weeks, which would have denied us sensationalized headlines regarding the apparent danger of Labour leader Jeremy Corbyn to the country’s national security. Some of the hyperbole that’s been printed on the front page of the country’s newspapers has been entertaining, but a more powerful force has now weighed in with its opinion:- the global stock market. It’s backing Johnson, and it’s doing so with some certainty.
‘Certainty’ has been a word that’s been hard to come by in the United Kingdom for more than three years. The entire nation has been paralyzed both politically and economically by the result of the 2016 European Union referendum, which saw the people of the country vote to leave the political union with Europe, but the country’s politicians apparently lacking willing and vision to do it with. Nobody in a position of authority knew how they wanted to divorce from Europe, or when they wanted to do it. The net result of that uncertainty is that Boris Johnson is the third Prime Minister of the county since 2016, and the departure from the EU is yet to happen. The current plan is to leave early in 2020, but after three delays, it would surprise nobody if that date was to be pushed back yet again.
During times like these, economies tend to suffer. When that economy is as large as the United Kingdom’s, it can have a severe knock-on effect on world finance. Investors and traders love a gamble, and they’ll take a risk if they think the rewards could be worth it, but they won’t bet blind. For all this time, trying to make investments in businesses that will be affected by Brexit has been more akin to playing online slots than playing blackjack. You can see at least a few of the cards with blackjack. When you’re playing online slots on UK slots site, you know nothing about the outcome of the next spin whatsoever, and nor can you influence it. That’s perhaps why you’ll find professional blackjack players, but you’ll never find professional online slots players. It’s a fun hobby, but it’s too unpredictable to make a career out of.
Johnson winning the election wouldn’t necessarily give investors and traders certainty about the outcome of Brexit, but it would give them some insight into what might happen next. The whole reason that the election was called is that Johnson has thus far been unable to pass his preferred Brexit legislature though the British Parliament because his Government did not hold a majority. If the election gives him that majority, the content of his Brexit deal is already known. Investors can use that to make predictions about future trade and growth, and that’s all they need to start trading again. When the polls conducted on Thursday, December 4th showed that Johnson’s party now holds an 11 point lead – enough to give him the majority he desires – the British Pound responded by hitting a seven month high against the dollar.
As of the time of writing, Sterling is trading at just above $1.30. The last time it reached that level was May. There also appears to have been a positive effect on the Euro, which has reached a value of $1.18 and is, therefore, at its highest since the tail end of the summer. That was when Theresa May failed to pass her own version of a Brexit agreement and was ultimately forced to resign as Prime Minister. The resultant leadership election and prolonged period of uncertainty had a chastening effect on the value of both the Pound and the Euro for several weeks.
While the news appears to be welcome to the market here and now, it comes with a caveat. During the country’s previous General Election in 2017, polls also indicated that Theresa May’s Government would enjoy a significant majority over Corbyn’s Labour Party when the votes were counted. That turned out not to be the case. The Conservatives underperformed, Labour overperformed, and May was left unable to form a majority government. There are some political analysts within the country who feel that young people – who heavily favor the Labour Party – are underrepresented in the polls. The fact that the election is taking place in December may also play a role – the weather is cold, and heavy wind and rain may make it difficult for older voters to cast their votes. If the turnout among senior citizens is low, Labour’s chances could be dramatically improved.
It could even be the case that the seeming recovery of Sterling is coincidental – the entire global picture has been helped by a seemingly more conciliatory tone adopted by US President Donald Trump when it comes to China. Just a week ago, he indicated that striking a new trade agreement with China may not be possible until 2021, but speaking at the NATO summit, he appeared to be much more hopeful that there would be positive news in the near future. Stock markets welcomed the news, with the Dow Jones index alone jumping nearly 200 points in a single day.
The general picture seems to be that the markets are up, and Sterling is strong, but both situations may be temporary. If you’re an investor and you’re thinking of doing big business in the United Kingdom (or in a field that’s likely to be affected by political events in the United Kingdom), the best advice might still be to either get it done quickly or wait a little longer. Two weeks from now, the election will be over, and the picture will become clearer – unless, of course, there’s a hung Parliament and no overall control. In that scenario, the uncertainty will continue.