Where Could The Pre-Christmas Election Take The Equity Gauges At LSE?

  • Oct 30, 2019 GMT
  • Team Kalkine
Where Could The Pre-Christmas Election Take The Equity Gauges At LSE?

The United Kingdom, which was all set to exit the European Union in the last week of October 2019, is now heading towards a poll for the third time in the last four years. PM Johnson's promise to hand over Brexit to the UK citizens at any cost has now crumbled, despite he negotiated a Withdrawal deal from the EU bloc and secured support in the British Parliament as well.

On Tuesday (October 29, 2019), Prime Minister Boris Johnson announced a pre-Xmas election to fix this deadlock at the British Parliament and to deliver Brexit as well, however many Tory Parliamentarians commented that it is a high-stake gamble that could lead to an unfavourable result.

They also added that during 2017 Ex-PM Theresa May’s election, it was expected that Tory party would secure a majority at the British Parliament to allow May's government to push through the hard form of the UK's exit, but exactly converse happed as the Conservatives went backwards and Brexit became more complex.

One former Conservative minister commented that I believe this time we will end up with another Hung parliament and Rory Stewart, former Conservative leadership contender extended his support to the statement that "it will be a replica of what happened with Theresa May in 2017".

Former Tory Chancellor, Ken Clarke stated that PM Johnson’s declaration for December election could restrict him from delivering Brexit, that’s why the opposition including Liberal Democrats and SNP want an election now, they want to upset Brexit again.

However, in case the PM Jonson fall short of a majority in December election at the Westminster, there are potential risks that an alliance of Labour party, Lib Dems and Scottish National party could join hands to stop Brexit, probably by conducting another referendum in which Remain beat Brexit. However, Boris Johnson’s cabinet expressed that they have no other option than to push an early election to fix this deadlock which is getting worse since June 2016; also they wanted to end this political stalemate at the House of Commons; however, many view a sense of nervousness behind the polished black door.

This pre-Xmas election could be the most significant in the history of the UK. It will determine Britain’s long-term trade, political and security relationship with the European Union and the future of the union between England, Scotland, Wales and Northern Ireland. A victory of opposition Labour party could lead to a wholesale shift towards state intervention in the economy and away from its critical defence and security relationship with the US.

Equity Market

Post-December election announced by the PM Johnson, the broader equity indices traded mix with the broader large-cap gauge the FTSE 100 index traded 0.34% lower at 7,306.26 in the October 29 trading session and the mid-cap FTSE 250 index ending 0.21% lower against the previous close at 20,168.33.

At the time of writing (as on October 30, 2019), the benchmark UK index the FTSE 100 index was trading marginally higher at 7,307.90 and registered an intraday high of GBX 7,315.85 and a low of 7,288.0 respectively. The mid-cap index the FTSE 250 index traded 86 points or 0.42% lower at 20,082.04 and touched an intraday high of 20,168.84 and a low of 20,081.81, respectively, before the market close at 12: 32 PM GMT,

However, the technical trend in the broader index is showing a favourable trend, as the difference between 12-day Exponential moving average and the 26-day exponential moving average is positive, indicating that the moving average convergence divergence is rising and MACD oscillator trending above the 9-day EMA. Also, at the current trading level, the index was quoting well below its crucial long-term support levels of the 200-day simple moving average (SMA) of 7,279.85.

Also, the mid-cap index FTSE 250 index was trading well above its short-term and long-term support levels of 50-day and 200-day Simple Moving Average Prices; also the difference between 12-day and 26-day EMA is positive and MACD oscillator was hovering well above the 9-day exponential moving average signal line.

However, the market would remain under pressure till the December election.

Sterling Pound

The no-deal Brexit risk prevented the British currency gaining ground against the US dollar and traded 0.16% higher at $1.2885 (at the time of writing as on October 30, 2019, before the market close at 12:50 PM GMT), and registered an intraday high of $1.2906 and a low of $1.2858, respectively.

However, since the Brexit referendum took place in June 2016, Sterling Pound is the most affected asset class in the UK market, as it kept on devaluing against a no-deal Brexit fear, which was sharp, post Boris Johnson took oath as the British Prime Minister.

At the current trading level, the moving average convergence divergence oscillator was hovering below the 9-day exponential moving average signal line, but the difference between 12-day EMA and 26-day EMA is positive. However, at the current trading level, the currency pair GBP/USD traded well above the long-term crucial support level of 200-day Simple Moving Average (SMA), which is now crucial support for the currency pair.

As the chances of a “no-deal” Brexit is almost eroded now, the British currency could gain some ground against the peer currencies.

However, December election would be very crucial for the Conservatives as PM Johnson’s Party; Tories are like to lose seats against the SNP candidate in Scotland and Liberal Democrats in the south, means they have dent Labour seats to win the December election.

At present, the market is consolidating the losses it has registered in the past because of no-deal kind of exit of the UK, which now looks a matter of past, but Brexit saga still will weigh on the market sentiments in the near-term.

In case, if December election outcome turns into another hung Parliament, the UK could  be back to square one; however, poll experts are expecting that Conservatives would have clear majority against the opposition Labour, but with Brexit factor it is going to make it the toughest election to predict, similar to election outcomes worldwide which have been surprising in the past couple of years.

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