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Snap election - market reaction

Following Theresa May’s announcement she is tabling an election for 8th June, to be voted on by the House of Commons, here is the initial market reaction:

The pound dipped to $1.2515 in anticipation of the announcement, but subsequently rallied 1.2% to $1.2670 (1pm) on news of a general election on the offing.

The FTSE 100 is currently trading 1.7% lower on the day, though the UK’s benchmark index was already on the back foot before Theresa May’s announcement, as falling iron ore prices sparked a sell off in the mining sector. A rise in sterling doesn’t help the share price of these companies either.

The FTSE 250 is also down just under 1%, again with resources stocks bringing up the rear.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

"The pound was the big winner from news that a UK general election is in the pipeline, as currency markets bet on the current government winning a greater majority.

The rising pound helped heap pressure on the UK stock market, which was already on the back foot thanks to declining iron ore prices hitting the resources sector. Of course the benchmark FTSE 100 is far from a pure barometer of the perceived health of the UK, given the global nature of the companies that constitute the index.

Markets can get a case of the jitters in the run up to elections, but this one may be different seeing as it comes in the wake of the Brexit vote, and the polls suggest the incumbent government is likely to remain in power and gain more seats.

Nonetheless a snap election does potentially open the door to some market volatility in the coming months, though investors shouldn’t let their investment decisions be dictated by swaying polls. The household saving ratio is currently at its lowest level since the 1960s, and the big risk investors face from an election is that they let it disrupt their financial plans.

In the short term market sentiment can be driven by political events, but investors should look beyond any noise as politicians hit the campaign trail, and keep focused on their own long term savings goals."