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As the day dawns in London the country has made its decision, and the initial reaction from markets has been a positive one. When the exit poll was released last night we saw a spike higher in the pound and FTSE futures as well, with the former moving back to $1.54 and the latter pushing higher from last night’s close.
As David Cameron is set to retain the keys to No. 10, with an increased number of Conservative MPs, the way ahead in economic policy terms looks very much like ‘steady as she goes’, especially since they look likely to govern alone. IG clients have been steadily pushing up the expected number of Tory MPs, and now they are forecast to win 326 seats, giving them a majority, reflected in the IG political market for a Conservative majority government, which now stands at a 62% chance. For investors, the results from last night mean that they can cease worrying about the UK economy, and focus on the other areas of concern, like Greece and whether the Federal Reserve will hike rates this year.
We have yet to see any realisation among traders that the Conservatives’ victory makes an EU referendum almost certain. A majority Tory government would allow the vote to proceed, which will likely lead to market jitters, both in FX and in key FTSE sectors such as banks and major financial firms, who have already warned about the impact of a popular vote on the UK economy.However, this appears to be a question for another time. With US job numbers on the calendar for today, it may be that the UK election result disappears from the radar screen much sooner than expected.
Ahead of the open, we expect the FTSE 100 to open around 90 points higher, not far off the magic 7000 mark.