Britain’s benchmark stock index has dipped into negative territory for the year as the rising pound weighs down on the FTSE 100.
Having suffered its worst daily drop since the Brexit vote yesterday – down 2.5 per cent – the FTSE has slipped another 0.17 per cent this morning, taking its total 2017 performance into the red by 0.15 per cent.
The UK’s blue-chip index hit an all-time record high last month but the announcement of a snap general election for June 8 has driven the pound to four-month highs and caused stocks to suffer. The index is dominated by multinational companies whose foreign-denominated earnings take a hit from a stronger pound.
The mid-cap FTSE 250 meanwhile is up 0.2 per cent today as it is exposed to more UK-focussed companies who get a lift from the rising pound.
Theresa May’s call for an election in seven weeks’ time has boosted investor hopes the prime minister will have a stronger domestic mandate to secure the UK’s EU exit and push back hard deadlines for a trade deal until the end of her renewed parliamentary term in 2022.
The Conservatives are on course to win over 40 per cent of the vote according to the latest polling.
Sterling is trading broadly flat against the dollar today having leapt 2.2 per cent on Tuesday – its best single-day performance in four months. The pound is now up over 5 per cent against the dollar this year having slumped in the wake of the suprise Brexit vote last June.
“With a larger majority, it seems more likely that whatever deal Ms May eventually negotiates with the rest of the EU will be rubber-stamped by Parliament. So, the election should reduce the likelihood that the UK will leave the EU without any deal in place – the most damaging of all ‘hard Brexit’ scenarios”, said Chris Scicluna at Daiwa Capital Markets.
Deutsche Bank has now closed all of its bearish trades on sterling following the election announcement. The House of Commons will vote later today on whether to approve the dissolution of parliament, which under the UK’s fixed term parliaments will require a two thirds MPs majority.
A stronger parliamentary cushion for Mrs May will shift the political calculus “from the ‘cliff edge’ pricing and more towards the ‘smooth’ Brexit via a transitional deal rather than renewed hopes of a softer Brexit”, said Jordan Rochester, FX strategist at Nomura.