Snap election call wipes £45bn off FTSE 100
Shares plummet owing to rising pound, but markets react positively to prospect of greater certainty
Westminster was reeling in shock yesterday morning when Theresa May did an about-face on her consistent pledge not to hold an early general election.
The Prime Minister has called for a poll, which must now be agreed by Parliament, for 8 June.
On the markets there was also a big reaction to the news: the FTSE 100 fell sharply, a 2.5 per cent drop wiping almost £46bn off company valuations.
The Guardian says it marked the "worst day since the Brexit referendum" for the index.
This should not be taken as a sign of negative sentiment, however. Rather it is a reflection of the rise in the pound, which gained 2.7 per cent yesterday to surge to its highest level in more than four months.
"Most multinationals listed on the London stock exchange earn the majority of their profits in dollars, which have been worth more due to sterling's decline in the wake of the EU vote," the Guardian adds.
In fact, the FTSE 100 is still trading a full 1,000 points, or 16 per cent, above where it was immediately after the EU referendum.
Sterling is still around 15 per cent down on where it was on the evening of the referendum last June.
The pound is rising because analysts are expecting the Tories to secure a much increased majority, which they say will give May the room she needs to negotiate Brexit on her own terms.
Keith Wade, chief economist at fund manager Schroders, said: "A successful election would give May the mandate to pursue her own Brexit strategy.
"My sense is that a stronger mandate and more time would allow a more patient approach and a softer Brexit, probably more in line with May's instincts."
Pound jumps to four-month high after snap election shock
Sterling has rebounded strongly to hit its highest level for four months following Theresa May's announcement of a snap general election.
May's blamed her surprise decision, which came after months of repeatedly and strongly denying an election was in the offing, on "division" in Westminster that could thwart Tory plans on Brexit.
Subject to the two-thirds parliamentary approval necessary under the Fixed-Term Parliament Act, a general election will now be held on 8 June.
Markets typically do not like uncertainty and as this is all taking place against the backdrop of Brexit, it might have been expected that the pound would fall.
Instead, after dropping initially this morning, sterling rebounded strongly. By this afternoon, it was up well in excess of one per cent to $1,2744 against the dollar, the highest it has been since 15 December, says the Daily Telegraph.
Current polling suggests the Tories are so far ahead they could be set to secure a majority of more than 100 seats. That means a stronger hand on Brexit and consequently more certainty on what markets see as the big issue of the day.
"Everything points to the Tories being elected with a substantially increased majority," Paul Mumford, a fund manager at Cavendish Asset Management, told The Independent.
He added this will put the government "on steadier, more solid ground as it begins the difficult, complex work of negotiating Brexit" and can "only reduce uncertainty and the potential for hiccups over the next couple of years".
Luke Bartholomew, an investment manager at Aberdeen Asset Management, even suggested an improved mandate could allow for a softer Brexit, which markets would prefer.
"A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely," he said.
"The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit."