How have markets reacted so far?
In the immediate aftermath of Theresa May’s election announcement, the pound surged to its highest level of 2017. Little surprise, given May’s significant lead in the polls and the confidence the markets had in a Tory victory.
But after the shock outcome, the pound fell over two cents against the dollar, and any gains owing to the prime minister’s announcement were on track to be undone. The Tories’ quick deal with the DUP staved off the worst of the uncertainty, but questions still remain over May’s future and the Brexit negotiations due to begin soon after the vote.
May’s original announcement also had a significant impact on the FTSE 100, whose constituents have benefitted from cheaper exports over the last few months. The resurgence in sterling resulted in its worst fall since the EU referendum. In the wake of the vote, however, the big-cap index approached record highs, gaining the boost it needed from a weak pound which is bound to take time to recover.
For the FTSE 250, meanwhile, May’s call for a snap election propelled it from all-time high to all-time high. Though the domestically-focused index is seen as particularly vulnerable to Brexit negotiations, clearly the prospect of the Tories’ business-friendly policies had put those concerns to bed.
But as Labour gained ground in the polls, the FTSE 250 was given a rude awakening. Traders began to lose confidence after its record high at the beginning of June, and the mid-cap index started to slip away — a move that, now the results are in, could well be exacerbated by dwindling faith in May’s leadership.