UK Leadership vote
Things are hotting up in the UK with the Prime Minister now facing a vote of No Confidence in Parliament within the next 12 hours. Both UK equity indices (#UK100) and Sterling (GBP) have initially reacted positively to this, with some commentary attributing this rise to the possibility that Brexit will be cancelled. In fact, the markets don’t have any firmly-held conviction about Brexit – the UK will find a way to do business – what the markets dislike is uncertainty, and Theresa May’s catastrophically muddled tenure as UK PM has provided that by the bucketful. In the event that she survives the vote tonight, there cannot be another such vote for 12 months. However, if she does manage to cling on, the Democratic Unionist Party will immediately withdraw the support that the Conservatives rely on to get legislation passed for their minority Government. This is likely to trigger a General Election, and all the uncertainty that comes with it, particularly for Conservative MPs, very many of whom can expect to be defenstrated. It is our view that any Sterling purchases are prudent covering of short exposure until the outcome is clearer, and we would do the same. The only chance the Conservatives have of remaining in Office is to elect a new leader who can re-vitalise the Party before it is too late. Once the dust settles we’d review the situation but in our view the most beneficial outcome for Sterling would be a change of leadership to someone who can deliver the Brexit that people voted for, and come to a sensible understanding with Brussels. Should a General Election be called the possibility exists that Jeremy Corbyn, who represents the part of the left that is so far beyond the pale it cannot be seen by moderates, could be pushed into power. That indeed, would be a nightmare for Sterling and could prompt a genuine push into new historic lows.