How the spread betters are calling the general election
Not since Major’s defense of 1992 has there been so much attention on the polls. The prize for the race to power seems to be anybody’s for the taking with permutations on power sharing almost ten a penny. However, the victory is very likely to be something of a poisoned chalice for the winner as the task ahead is so negative that the bitter taste of the remedial medicine may well prove toxic in any future elections.
The appalling state of the public sector finances is top of the agenda for the winner on Thursday night and our client base has been attempting to place positional trades to take advantage of any pivotal move.
The UK is unaccustomed to coalition governments and, if the voters deliver one, markets may fear that the urgently required nasty decisions might be delayed. Added to this is the outside potential for a downgrade in the UK’s AAA rating and the consequential risk of lower overseas investment ultimately delivering a weaker pound and higher borrowing costs.
Top of the bill for our clients’ “election bets” is the Sterling/Dollar cross (popularly called the Cable rate) which is currently trading at around 1.5150. For those looking for the doomsday scenario the initial targets will be the lows of 2010 so far at around 1.4780 and then for the really pessimistic the lows of 2009 at 1.3550. On the other hand there are some positive possibilities over the period to the election with the Tories perceived as rather more market friendly. If we see some confidence reasserting itself we may well get a sharp move into positive territory with the 1.5500 level seen as the first hurdle.
In reality all the bad news might be seen to be ‘in the market’ and if this is indeed the case the pound might surprise us all and actually go on a bear hunt for weak short sterling positions. A very large number of our clients seem to be overly pessimistic and if this perception is repeated across the whole market there may be impetus for a bounce.
As the election numbers come across the screens on the night of the 6th/7th we can anticipate some dramatic market activity in the early hours. FX markets are open 24hrs a day and Capital Spreads will also be quoting the FTSE100 index throughout the night for those who cannot sleep!
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