The Daily Reckoning UK

I Wasn’t Expecting That…

Darren Sinden


Posted 9th June 2017

In 1977 radio astronomers working at Chip university, Ohio, received a signal from deep space whose origin they could not explain…

It would famously become known as the WOW signal, thanks to hastily scribbled annotation in red ink on the print out beside it.

The source of that signal remained a mystery for decades.

Last night’s election result was another WOW moment: an unexpected and unexplained signal from the UK electorate that, far from strengthening Theresa May’s hand, has weakened it considerably and left the country without a controlling party in the new parliament.

The possibility of a hung parliament was not completely discounted by polls and models prior to Thursday, however it seemed very much as an outlier – a political Black Swan, if you will…

So called because up until the 17th century, Europeans believed Black Swans didn’t exist because they had never seen one.

Dutch explorers modified those views when they returned from their voyages to Australasia with Black Swans, proving that just because you  haven’t experienced something, doesn’t mean it doesn’t exist or isn’t possible.

There is a valuable lesson here for investors, traders and politicians – one perhaps the latter group, and their advisors, should have heeded prior to and during the campaign.

There will be an almost endless post-mortem of the results in the coming days, but my initial thoughts are that the Tories were unable to turn disaffected Labour voters to their cause, despite the fact that these were the same voters who gave ‘vote leave’ it’s victory in last year’s Brexit referendum.

For whatever reason, those voters could not warm to the Tory cause or Theresa May and her team, despite the fact that she had set her stall out to deliver the Brexit they had previously voted for.

Perhaps the truth is that Brexit – which was never properly defined – meant different things to different people, and consequently they were not as aligned as a group as we might have thought.

The great British public has been a source of countless hours of free entertainment over the years on shows such as That’s Life, Game for a Laugh and You’ve been Framed, so we should all be aware of their (our) foibles and idiosyncrasies.

It seems in this instance, the last laugh is on them – at the expense of the Tory party majority.

Of course not all those in Westminster will be hanging their head this morning…

The Corbyn camp, and Jeremy Corbyn, in particular, will be Cock a hoop.

True, Labour will still be the smaller of the two major parties by some margin, but given that in April they were looking at the prospect of being swept off the board, from a personal standpoint Jeremy Corbyn has pulled off a triumph…

With the editor of the right-leaning Spectator magazine Fraser Nelson noting that Mr Corbyn looks to have done more for his party than any Labour leader since Clement Attlee, who led Labour to victory after WWII.

What those at Conservative party HQ may like to consider is this: what could Labour have achieved last night if it had been unified and organised?

As Mark Twain famously said, having read his own obituary: “Rumours of my demise have been greatly exaggerated.”

How the markets have reacted…

Though Labour politicians and voters will be pleased, the City and financial markets will be anything but…

Not because of political allegiance, but because of the situation we are now left with – which can be summarised in one word: Uncertainty.

The UK electoral system is designed to try prevent ambiguous situations such as these, but they can be thrown up and the timing could not be worse for it to happen now…

The markets have tried to ignore political risk over the last 12 months, but they can’t do that anymore as far as UK is concerned.

The division between the export-led FTSE 100 and the domestically-focused FTSE 250 index is clear to see…

From the outset of trading, the FTSE 250 were off by more than 50 points, or -0.27%, at the time of writing, and the FTSE 100 had gained by +44 points, or 0.60%.

Sterling weakness has driven the FTSE 100 gains, whilst concern about what comes next has driven the FTSE 250 down, although given the scale of the election surprise it’s holding up pretty well in my opinion.

House builders and the UK centric banks are among the big fallers from the open. RBS is down around -2.8% as I type, whilst Taylor Wimpey have tumbled by -3.30%.

This will clearly be an evolving situation, both in terms of the politics and the markets. There are so many questions yet to be answered and probably as many that are yet to be asked.

Further speculation seems pointless right now, but I think we should expect some volatility over the coming sessions.


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