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Home / Business

Markets brace for UK election, the third leg of the trifecta

Jamie Gray
By Jamie Gray
Business Reporter·NZ Herald·
8 Jun, 2017 05:00 PM4 mins to read

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Opinion polls suggest a win for UK Prime Minister Theresa May is on the cards, but that it could be a close run thing. Photo / AP

Opinion polls suggest a win for UK Prime Minister Theresa May is on the cards, but that it could be a close run thing. Photo / AP

Investors are poised for today's UK election result, one of a "trifecta" of market-moving events to occur within hours of each other.

In what northern hemisphere markets have dubbed "super Thursday" there is the British election, a meeting of the European Central Bank's (ECB) board and former FBI chief James Comey's appearance before the Senate's intelligence committee in Washington.

In addition, there are rising tensions in the Middle East, plummeting oil prices and sharply higher gold prices at just under US$1300 ounce - its highest point since last November.

Analysts said a win to incumbent UK Prime Minister Theresa May over Labour leader Jeremy Corbyn would be a market-friendly result.

Opinion polls have suggested a win to May is on the cards, but that it could be a close run thing.

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Voting booths will close at 9am NZT, an hour before the New Zealand sharemarket opens for business.

Expectations are that the European Central Bank will be forced to admit that its radical pump-priming policies have failed to produce the desired results, forcing it to revise down its inflation expectations.

The central bank last year cut interest rates to zero and injected billions of euros into its member countries' economies, all to little avail.

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In the US, Comey's appearance before the committee is expected to throw some light on President Donald Trump's involvement in the bureau's investigation into Russia's alleged involvement in last year's US presidential election.

In the Middle East, the small, rich and strategically important country of Qatar has been diplomatically isolated by its neighbours, including Saudi Arabia, and Iran is reeling from a terrorist attack in the capital, Tehran.

Oil prices slid nearly 5 per cent on Wednesday after the US government reported an unexpected increase in crude inventories, fanning fears of a worldwide oil glut. US light crude traded at US$45.72 a barrel.

Mark Lister, head of private wealth research at Craigs Investment Partners, said higher gold prices were reflecting nervousness about fully-priced world sharemarkets and the heightened risks around those markets.

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"Sharemarkets are still not far off record highs, which just adds another element as well, because it potentially puts them in a slightly more precarious position if something negative comes out of left field," Lister said.

Despite the uncertainty, America's VIX - a widely followed index which is designed to show the market's expectation of 30-day volatility - has remained quite low.

ANZ Bank chief economist Cameron Bagrie said geopolitical uncertainty had not so far directly translated to market volatility.

But Bagrie said world growth could slow in the second half of this year and the first half of 2018, if heightened political uncertainty persisted.

"I'm surprised that the markets are telling us that it's a low-volatility world, whereas everything I'm seeing tells me that it's a high-volatility world," Bagrie said.

"There are no shortage of fuses to light the bomb, and you only need a small fuse to light a big bomb."

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Castle Point fund manager Stephen Bennie said markets looked to be out of step with heightened risk.

"It's strange that the VIX is so low, but everyone agrees that the risks are really high," Bennie said. "It's a paradox that you have to get your head around - one of low volatility and high risk."

Craig Investment's Lister said New Zealand was unlikely to feel the fallout from the election result and the other elements of "super Thursday".

"The good news for us is that we are tracking along quite nicely," he said.

"We have our issues - the housing market, high debt levels, and our reliance on China - but the business sector is going pretty well and the economy is chugging along nicely."

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