By Zero Hedge
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In a somewhat shocking shift, Jeremy Corbyn is now the favorite at the bookies to become the next Prime Minister (despite the fact that Tories will likely remain the majority party – unless this is an absolute disaster)
Is this a premature call? Or is the market coming around to the idea that Theresa May and the Conservatives have got this horribly wrong?
ITV’s political editor Robert Peston has summed up some important conclusions. The below is all from his Twitter account:
1) the left’s grip on Labour now unshakeable, and Blairism totally dead (as I mentioned on Wednesday)
2) we are witnessing the starkest generational split at ballot box for years, with young backing Labour and old the Tories
3) @theresa_may very seriously wounded – and her rivals, such as @BorisJohnson, will be weeping crocodile tears
4) we are back to traditional right-versus-politics of a sort we haven’t seen for more than 25 years
5) we are entering a period of chronic political instability, and another general election in the autumn looks almost inevitable
6) sterling and stock market will be under serious downward pressure in the morning
(Some suggest that a hung parliament could actually prove sterling-supportive as it increases the chances of a softer Brexit.)
7) goodness only knows what this means either for the timetable for Brexit or the nature of Brexit
8) what I worry about, more than anything else, is that our nation will be revealed as more divided that at any time since the 1980s
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The Exit Polls
UK exit poll projects COnservatives are the largest party but fall short of majority – leaving a hung parliament.
- Conservative 314 – 12 seats short of majority
- Labour 266
- SNP 34
- Lib Dem 14
- Plaid 3
- Green 1
- UKIP 0
- Other 18
NOTE: Historically these forecasts have been very accurate (within 15 seats for the winning party) but this means that if the exit poll projections are tight – i.e. within a 20 seat majority for the Tories – the margin of error means we may not know by 10pm which of the potential outcomes across small Conservative majority, Conservative minority or Labour coalition are the most likely.
A reminder of 2015’s UK election results
- Con 36.9% (330)
- Lab 30.4% (232)
- UKIP 12.7% (1)
- LD 7.9% (8)
- SNP 4.7% (56)
- GP 3.8% (1)
- Plaid 0.6% (3)
BBC ANALYSIS SHOWS 76 UK PARLIAMENTARY SEATS ARE TOO CLOSE TO CALL
Citi explains that “The gamble may not have paid off – this could be one of the most extraordinary electoral shocks in UK political history. The Conservatives appear to have actually lost seats.”
Remember that this is just an exit poll:
In 2015, the exit poll at 20:00 BST announced that the Conservatives were to win 316… by the end of the night, they had actually won 331.
Remember that 316 is a ‘working’ majority… So Theresa May will have to hope for a couple of tight wins.
Cable plunged… Almost erasing the gains post-snap-election…
- FORMER UK FINANCE MINISTER OSBORNE SAYS EXIT POLL IS “COMPLETELY CATASTROPHIC” FOR MAY AND HER CONSERVATIVE PARTY – ITV
Right now, markets are debating the following two scenario risks outlined by CitiFX Strategy:
Hung Parliament – This is what exit polls suggest. CitiFX Strategy has said that a weaker Conservative showing than 2015 would be a big surprise given the polling gap and the expectation that UKIP voters would move to Conservative. As much would considerably complicate Brexit negotiations. This was the most GBP negative scenario in our view.
Small majority (Unchanged or just slightly larger) would be a big blow to Theresa May but may still not totally derail Brexit negotiations. It does however temper optimism that negotiations will go smoothly. Arguably this scenario makes bigger changes in the Cabinet less likely. GBP negative.
We still have another exit poll and of course, the real vote. CitiFX Strategy says that if this proves correct, we do expect GBP to have more downside from here. At least another big figure below.
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The Polls heading in showed Labor gaining on the Conservatives…
And the bookies had Tories winning with between 358 and 363 seats (They need 326 to govern)
The General Election result will be called in the early hours of the morning – could we find out the winner sometime between 10pmET and 11pmET?
Here’s when broadcasters, more or less, called the result in previous years:
- 2015 – Tory majority – 5.44am (0044ET)
- 2010 – Hung Parliament/Coalition – Six days later with the coalition agreement (12 May)
- 2005 – Labour win – 4.20am (2320ET)
- 2001 – Labour win – 1.31am (2031ET) – Blair made a speech saying they’d won so the BBC just went along with it.
- 1997 – Labour landslide – 1.38am (2038ET)
- 1987 – Tory win – 12:47am (1947ET)
- 1992 – Tory majority – 2.19am (2119ET)
- Most Likely: PM May to win a larger majority (50+) which would supposedly allow for a much more stable Brexit process, through consolidating power while also making her less vulnerable to remainers within her own party, while the risk of a ‘no deal’ is lower and in turn lead to a cleaner Brexit. This can also suggest that it would be easier for PM May to agree on a transitional deal with the EU, mitigating some of the negative economic effects, as the next election will not take place until May 2022.
- Market Reaction: Initial spike in GBP, however given the rise in the currency since the announcement (1.2520 to 1.2900), this outcome has largely been priced in which could limit any move to the upside, consequently leading to a ‘buy the rumour, sell the fact price action. Stocks to watch: Centrica and SSE likely to take a hit if the Conservatives impose a cap on standard variable tariffs. As it stands, GBP/USD o/n vol is to reside around 29/120 pips.
- Likely: The conservative party win a slim majority (5-10 more seats) or relatively unchanged from current. This could possibly lead to a less stable government, making Theresa May more vulnerable to Brexit hardliners within her own party, subsequently raising the possibility of a ‘no deal’.
- Market Reaction: Risks are tilted to the downside and as such, this outcome would likely see GBP met with selling pressure, alongside a fall in UK Gilt yields as some suggest this risks a more confrontational approach to Brexit negotiations, subsequently increasing uncertainty.
- Unlikely: Labour manage to pull a surprise and form a majority through a coalition with SNP and Lib Dem, this would undoubtedly complicate Brexit negotiations, with analysts at Danske Bank noting that this outcome could potentially lead to Brexit being cancelled altogether or sway to a softer Brexit.
- Market Reaction: In an immediate reaction, GBP will likely drop off alongside equity markets as a whirlwind of uncertainty lingers over UK political front. Analysts at PIMCO state focus will shift towards a looser fiscal policy and an untested government. Stocks to look out for would be UK utilities (Severn Trent, Centrica, SSE, National Utilities and United Utilities) which would likely drop off amid Labour’s plans of nationalisation.
Looking far ahead, under the Act, the next general election is fixed to take place on 5 May 2022. This will change if two-thirds of MPs vote for an early election, or if the government loses a no confidence vote. It could also change if the Tories win and implement their manifesto pledge to renew the Fixed-Term Parliaments Act.
And finally, here are British cameramen desperately hoping to get a shot of the Russian agents who manipulated the British election…