UK General Elections — What the Outcome Could Mean for US Markets, June 8, 2017
The focus on this event is magnified because of Brexit, but the bottom line is that it’s unlikely to move global markets. Still, I wanted to provide a basic primer so no one is blindsided if there is election-inspired volatility.
Today’s election will be for the House of Commons. Polls and most betting sites have the Conservatives (the Tories) holding an outright majority over the second-largest party, Labour.
Positive If: Conservatives increase their majority. Magic number: 330 seats. If the Conservatives win more than 330 seats, their majority should expand and it will give the Conservatives a clear mandate on Brexit negotiations, and on economic and monetary policy. Since markets like continuity, this is likely the most positive outcome for stocks near term (although to be clear, I don’t expect a big Tory victory to cause a legit global rally).
Neutral If: Conservatives hold an outright majority. Magic number: 325 seats (technically they need about 322 seats, as most people expect five seats in Parliament to remain vacant as they will be won by Sinn Féin in Northern Ireland, and they don’t exactly like to participate in British rule). This would be a step backwards, and make negotiating Brexit and implementing post-Brexit policy more difficult (but it wouldn’t be a bearish game changer for UK stocks).
Negative If: The Conservatives can’t secure an outright majority. Magic number: <322. This outcome would lead to a very weak majority government from either the Conservatives or Labour, and it would not be positive near term as there would be no mandate for Brexit negotiations or the implementation of economic policy. In this outcome (which is a low probability), the pound would likely get hit hard, as would UK stocks, although I don’t expect that it would be a global headwind beyond the very short term.
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