Pound soars to six-month high after Theresa May calls general election, but £46bn wiped off FTSE 100 in worst day since Brexit vote

pound
The pound bounced back after tumbling earlier in the day ahead of a statement from Theresa May Credit: Fotolia
  • Pound rallies to six-month high after PM calls snap election
  • FTSE 100 suffers worst day since immediate aftermath of Brexit vote
  • £46bn wiped off Britain's biggest companies
  • Cost of hedging pound jumps after general election announcement
  • UK 10-year gilt yields rise by one basis point on announcement

                                                                                                    

Markets wrap: Pound surges to six-month high but FTSE 100 suffers worst day since Brexit after May calls early election

Sterling soared to its highest level in more than six months in a wildly volatile trading session after Prime Minister Theresa May surprised markets by calling a snap general election in June.

After hitting a three-week high against a broadly week dollar in early trade, the pound slipped to $1.2550 after May’s office announced she would make a statement without indicating what it would concern.

However, the local currency surged after May said she had decided “with reluctance” that an election was needed to secure political unity to support her Brexit plan. It jumped by as much as 2.37pc to $1.2904 against the dollar, marking its highest level since early October.

Pound smashes $1.29 against the US dollar, touching its highest level since October.  Credit: Bloomberg

Against the euro, the pound also hit a four-month high of €1.1936, up 1pc on the day. The pound also passed through its 200-day moving average - a key resistance level - for the first time since the EU referendum last June. Deutsche Bank, one of the world’s biggest sterling bears, described the early election as “a game-changer” for the pound, adding that it would raise its sterling forecasts in the coming day.

Other currency strategists in the City said the move by May lessens political uncertainty and reduce the likelihood of a ‘hard Brexit’.

Dean Turner, of UBS Wealth Management, said: “If May’s gamble pays off, it could strengthen her hand, potentially smoothing the process of leaving the EU.”

Welcoming the gains, Chancellor Philip Hammond said the bounce in the pound demonstrated the “confidence that the markets have in the future of the country, under a Conservative government with a new mandate.”

UK 10-year gilt yields, which slumped to their lowest level since mid-October before May’s statement, recovered immediately after an early election was called, rising one basis point.

Stocks, however, were rattled by the announcement. The FTSE 100, which tends to be inversely correlated to the pound as around 70pc of its constituents are dollar earners, suffered its worst day since the immediate aftermath of the Brexit vote. It surrendered 180.09 points, or 2.46pc, to close at 7,147.50, wiping almost £46bn off the value of Britain’s biggest blue chips.

The more domestically focused mid-cap index outperformed the FTSE 100, ending the day down 1.16pc at 19,297.91.    

Meanwhile, European shares were also hurt by May’s call for a vote. Pummeled by political jitters, including the looming French presidential election, the Euro Stoxx 600 fell to a three week low, while the German DAX tumbled 0.9pc and the CAC in Paris surrendered 1.6pc.

On that note, it's time to close. We'll be back again tomorrow from 8.30am. Thanks for following our markets coverage. 

Pound extends gains, smashes $1.29 

The pound smashed $1.29 against the US dollar, hitting its highest level since last October. 

It is now up 2.37pc on the day, changing hands at $1.2904.

Credit: Reuters

UBS: Election is likely to have a limited economic impact 

UBS Wealth Management argues that the election is likely to have "a limited economic impact".

Economist Dean Turner said: "Slowing growth in real incomes is already underway and will likely drag economic growth down this year relative to last. The economic effects of Brexit will likely only be felt over the long term; this election may give us a better idea of the direction the negotiations will take and the economic consequences that may ensue.

"We continue to expect the pound to close some of its valuation discount to other major currencies in the months ahead."

Market report: Ladbrokes Coral rallies to three-week high on Davy upgrade, as FTSE 100 suffers worst day since Brexit vote

British bookmaker Ladbrokes Coral rallied to a three-week high after Davy bet the group’s potential returns will outweigh regulatory risks in the sector.

The broker upgraded the FTSE 250 stock’s rating to “outperform” from “neutral” and lifted its price target to 156p from 128p as its new earnings for the group imply good double-digit growth both this year and next, driven by strong digital growth and merger synergies.

Analyst David Jennings believes the drivers of growth will outweigh the declining trends in UK retail.

Davy’s revised stance on the stock also reflects what is likely to happen in the industry after the government conducts its triennial review of gaming machines in retail betting shops. At present, the broker thinks the market is pricing in an overly bleak assessment of the impact of changes to gaming machine regulation.

Mr Jennings added: “Even if the review leads to a worse-than-expected outcome, such a scenario will only accelerate a second phase of sector consolidation.

“We think it likely that Ladbrokes Coral will play a part in such consolidation, with all of the value-creation benefits that this implies.”

The bullish note lifted shares by as much as 3.56pc to 133.1p in intraday trade, before closing up 0.8p, or 0.6pc, at 129.3p. Its peers Paddy Power Betfair dipped 95p to £84.30p, William Hill slipped 3.7p to 299.9p.

On the wider market, the surge in the pound weighed heavily on the blue chip index, as a large number of FTSE 100 constituents are dollar earners. The index suffered its worst day since the immediate aftermath of the Brexit vote, plunging 180.09 points, or 2.46pc, to 7,147.50. Meanwhile, the more domestically focused index surrendered 1.16pc to finish at 19,297.91.

UK-listed miners recorded their steepest fall in almost a year, with the FTSE 350 mining index plummeting 4.65pc. Iron ore prices slumped to their weakest level since January, pressured by a sustained drop in steel prices amid oversupply fears. BHP Billiton tumbled 71p to £11.98, Anglo American shed 60p to £11.10, Rio Tinto lost 118p to £30.03, Glencore dropped 17.3p to 291.8p and Antofagasta closed down 28.5p at 806.5p.

Separately, Jefferies cut BHP Billiton and Anglo American’s price targets to £17 and £13, respectively.

Oil majors also came under pressure after Brent crude slipped to an 11-day low as a US government report said shale oil output in May was expected to post its biggest monthly increase in more than two years. Royal Dutch Shell B shares tanked 67.5p to £21.25, BP sank 18.5p to 452.6p and mid-cap Tullow Oil fell 10.5p to 218p.

Meanwhile, the FTSE banking index crashed to a four-month low, with Barclays 5.4p lower at 207.3p, Royal Bank of Scotland down 3.7p at 224.7p, and Lloyds off by 0.5p at 62.2p.

Elsewhere, ahead of Burberry’s full-year results tomorrow, JP Morgan raised its price target to £16 from £14.50 amid expectations that will report sales growth of 11pc for the 12 months to March. Nevertheless, shares lost ground, down 62p to £17.01.

Citigroup retained its “buy/high risk” rating for online estate agent Purplebricks citing long-term value upside, while it issued a “neutral” rating for traditional agents Countywide and Foxtons given “uncertainty around the UK economy and technological disruption”. Shares in Purplebricks drifted 4.8p lower to 305p, Foxtons added 0.5p to 101.3p and Countrywide climbed 3.3p to 160.3p.

On the mid-cap index, fund manager Ashmore dipped 20.6p to 343p despite reporting quarterly net inflows for the first time in nearly three years.

Finally, Aim-listed drug developer Motif Bio enjoyed its best day in almost two-years, jumping 12.1pc to 32.5p,  after it announced positive results from its Phase III trial of its iclaprim antibiotics, that treat acute bacterial skin and skin structure infections.

Almost £46bn wiped off FTSE 100 in worst day since Brexit

In what was the FTSE 100's worst day since the immediate aftermath of the Brexit vote, £45.7bn has been wiped off the value of Britain's biggest companies. 

The blue chip index closed at its lowest level since February 2.

The markets are betting Theresa May's snap general election will provide greater certainty (and a softer Brexit)

Here's our group business editor Ben Wright's take on Theresa May's snap election: 

Great. Another campaign, lots more political bickering followed by an epoch-defining, once-in-a-lifetime vote. Can’t get enough of those.

There’s a compelling case to be made that the UK public, economy and markets have had quite enough of politics over the past few years, thank you very much, and could now do with an extended period of calm to absorb it all.

In the space of less than three years we’ve had the the Scottish independence referendum, the 2015 general election, the Brexit vote, and now the 2017 general election. In the midst of all that have been the two leadership campaigns for Labour (both remarkably long), one for the Conservatives (remarkably quick) and one for the Liberal Democrats (unremarkable in every way). Oh, yes, and Ukip.

That’s not to mention the weirdest US election in living memory at the end of last year, and the upcoming French and German elections. In other words, the past 30-odd months have provided a surfeit of the one thing that it is often said the market can’t cope with: uncertainty.

That being the case, it is a touch odd that the pound, after initially selling off amid speculation about May’s announcement on Tuesday morning, shot to a 10-week high when the prime minister confirmed that she was calling an early election.

It was a classic example of selling the rumour and buying the fact. Except in this case, traders kept on buying. Indeed, sterling passed through its 200-day moving average - a key resistance level - for the first time since the Brexit vote back in June.

Read Ben's full comment here

Hammond referring to planned autumn budget

Calm down folks! Chancellor Hammond was referring to planned autumn budget  and wasn't promising an extra post-election budget, William James of Reuters tweets, citing an aide. 

FTSE 100 suffers worst day since immediate aftermath of Brexit vote

The FTSE 100 has suffered its steepest one-day loss since the immediate aftermath of the Brexit vote, on pound strength.

The blue chip index ended the day down 2.46pc, a loss of 180.09 points, at 7,147.50. It marked its worst day since June 27 when the index plunged 2.55pc in the wake of the EU referendum. Given the nature of the international companies listed on the blue chip index, the surge in the pound weighed on dollar earners. 

Meanwhile, mining stocks also came under heavy pressure due to a slide in iron ore prices. 

Meanwhile, in Europe the CAC in Paris dropped 1.36pc and the German DAX lost 0.64pc. 

Joshua Mahony, of IG, said: "The decision from Theresa May to call a general election in June came from left-field, given her previous desire to reject any suggestions to do so. On the face of it this is about strengthening her negotiating hand ahead of the Brexit discussions. Certainly this general election is expected to be fought on Brexit grounds, with the Hard-Brexit (Tories), Soft-Brexit (Labour) and anti-Brexit (Lib Dems) all likely to be offered. Meanwhile, there will be a significant focus on the direction taken by Scottish voters, given that any SNP gains or losses would be taken as being indicative of a shift in the desire for independence from the United Kingdom."  

Pound on track for best day in three months

The pound is on track for its best day in three months after it soared on Therea May's snap election announcement. 

Credit: Bloomberg

It has extended its gains and is trading up 1.33pc at $1.2753 against the US dollar, marking its biggest one-day gain since January 17, when it rose 2.6pc. 

Stocks roiled by elections

With just over 30 minutes of trading to go, there's only a handful of FTSE 100 stocks in positive territory after Theresa May's unexpected early election caught market participants off guard. 

Jasper Lawler, of London Capital Group, said: "The negative reaction in the FTSE 100 to the snap election is, in our view, mostly currency-related.

"It looks the like markets are repeating Trump and Brexit pre-election patterns of weakness before the 1st round of the French presidential election on Sunday. On those occasions there was selling 1-2 weeks prior and then a sudden relief rally. We’d expect a similar pattern for the French Presidential election, with the rally to occur between the 1st and 2nd rounds."

Hammond: Boost in pound demonstrates market confidence in a future conservative government

Over in parliament, Chancellor Philip Hammond has acknowledged the bounce in the pound following Theresa May's statement earlier today. 

He said the boost in sterling demonstrates that the market has confidence in a future conservative government. 

He also said May's decision to call an early election will strengthen the UK's hand in Brexit talks. 

Hammond also said there will be a new budget after the election. 

FTSE 100 extends losses

With just over an hour until markets close, the FTSE 100 has extended its losses and is currently down 2.2pc on the day trading at 7,166.97.

That put its on track for its worst day since the immediate aftermath of the EU referendum when the index fell 2.55pc on June 27. 

 Miners are among the biggest losers. The sector weighed heavily on the index in early trade amid supply glut fears. 

Meanwhile, broad based losses in other sectors are hurt by the pound strength reflecting the international nature of the companies listed on the index. 

Currency markets bet on current government winning a greater majority

The pound is the big winner today, as currency markets bet on the current government winning a greater majority, said Laith Khalaf, Senior Analyst, Hargreaves Lansdown. 

"The rising pound helped heap pressure on the UK stock market, which was already on the back foot thanks to declining iron ore prices hitting the resources sector."

However, he points out that the FTSE 100 "is far from a pure barometer of the perceived health of the UK", given the global nature of the companies listed on the index. 

On the run up to elections, markets can get a case of the jitters, he says. 

He adds: "This one may be different seeing as it comes in the wake of the Brexit vote, and the polls suggest the incumbent government is likely to remain in power and gain more seats.

"Nonetheless a snap election does potentially open the door to some market volatility in the coming months, though investors shouldn’t let their investment decisions be dictated by swaying polls. The household saving ratio is currently at its lowest level since the 1960s, and the big risk investors face from an election is that they let it disrupt their financial plans." 

Although market sentiment could be driven by political events in the short-term, Mr Khalaf says investors should look beyong any noise as politicians hit the campaign trail. 

Defining moments for the pound since the Brexit vote

Useful graphic from Anthony Cheung of Amplify Trading highlighting the defining moments for the pound since the Brexit vote: 

IMF upgrades UK growth again as Theresa May hails economic strength

The IMF has upgraded UK growth forecast this year by more than any other major economy. Szu Ping Chan reports: 

Theresa May hailed the strength of Britain's economy on Tuesday as the International Monetary Fund upgraded its forecast for UK growth this year by more than any other major economy.

The pound hit a four month high against the dollar after the Prime Minister called a snap election and vowed to "get the job done" on Brexit.

Mrs May said a general election on June 8 would bring unity at Westminster as well as the "certainty, stability and strong leadership" needed as the UK begins negotiations to leave the EU.

Mrs May's announcement came as the IMF raised its forecast for UK growth this year for the second time in three months.

MUFG: Snap UK election will be GBP positive 

MUFG reckons the snap election will be positive for the pound. 

Strategist Lee Hardman said: "We believe there is potentially an ulterior motive in this announcement that PM May could never admit to. The government’s majority in parliament leaves PM May and her Brexit negotiating team open to internal faction-fighting that would potentially strengthen the EU’s position in negotiations.

"PM May’s statement paints a picture of wanting to get on with Brexit that is being scuppered by “political game-playing” by other political parties. However, this strategy may also lead to the ‘Hard Brexit’ faction within the Tory party being weakened as well thus opening up the potential for the government agreeing to an “implementation” phase toward Brexit that implies continued adherence to the EU 4 Freedoms that is less disruptive for the UK economy."

Credit: MUFG

Mr Hardman thinks that if financial markets take this view, coupled with the fact that an election will no doubt reduce to some degree the domestic political uncertainty, then today’s important development is GBP positive.

MUFG already holds a bullish GBP/USD forecast with a year-end target of 1.3250.

He added: "We already hold one of the more bullish views for the pound and hence stress that today’s announcement makes us more confident in our year-end target being achieved. The 200-day moving average has just been broken today which provides technical support to our favourable fundamental view for the pound from here."

Pound also hits four-month high against euro

The pound has also hit a four-month high against the euro, rising 0.8pc on the day to 84.02p per euro.

Earlier this afternoon, the pound soared to its highest level since December against the US dollar, touching $1.2715.

Another FX reversal: Goldman Sachs ditches bullish dollar call

While Deutsche Bank has changed its outlook on the pound, US investment bank Goldman Sachs  has ditched long-standing bullish dollar call.

Early election a 'game-changer' for both UK's Brexit negotiations and sterling, says Deutsche Bank

Deutsche Bank is changing its view on sterling after Theresa May called an early election. 

Having been structurally bearish on the pound for the last two years, the bank thinks this morning's announcement is "a game-changer" for the local currency. 

Macro strategist Oliver Harvey said: "We do not see the election as a mandate for hard Brexit. Instead, assuming current polling proves correct, it should result in a larger Conservative majority."

If this is true,  Deutsche Bank thinks it will have three material implications: 

  1. It makes the deadline to deliver a "clean" Brexit without a lengthy transitional arrangement by 2019 far less pressing given that no general election will be due the year after;
  2. It will dilute the influence of MPs pushing for hard Brexit, strengthening the government's domestic political position and allowing earlier compromise over key EU demands for a transitional arrangement;
  3. It strengthens the PM's overall negotiating stance who in recent weeks has clearly fallen in line with the European negotiating approach.

As such, it thinks this will involve a settlement of the Brexit payments and other divorce aspects first, to be followed by a lengthy transitional period during which the final outcome of Brexit will emerge.

Mr Harvey added: "This sequenced approach materially reduces the "crash risk" of Brexit negotiations as well as strengthening the Prime Minister's hand in pursuing an orderly (and very lengthy) withdrawal. All of the above in turn reduce downside risks for the UK growth outlook over Brexit negotiations." 

The bank also said it is closing out all its bearish FX trades. It intends to review its sterling forecasts in the coming days. 

Pound breaks $1.27, hitting four-month high

The pound has now made gains of 1.02pc today, changing hands at $1.2715 against the US dollar. 

This marks its highest level in four months, since December 15 when it touched $1.2744. The local currency is now on track for its best day in three months. 

Pound rallies to four-month high Credit: Bloomberg

Deutsche Bank: UK election news 'a game-changer' for the pound

Strategists at Deutsche Bank have described the UK election news as "a game-changer" for the pound. 

The bank thinks the announcement will raise sterling forecasts in the coming days. 

Pound extends earlier gains, nears 11-weeks high 

The pound has extended its gains this afternoon, rallying towards an 11-week high, after Theresa May surprised markets by calling an early general election. 

May said in a statement she had decided "with reluctance" that an election was needed to secure political unity and stability as Britain negotiates its way out of the European Union.

The local currency is up 1pc on the day at $1.2692, marking its highest level since February 2. 

Credit: Bloomberg

Steven Andrew, M&G Multi-asset Manager, said: “The reaction of sterling on the foreign exchanges has been to rally subsequent to the announcement of an early election.  The coming days will likely yield many explanations as to what sort of result this suggests is being priced-in by markets.  While making for interesting copy and fuelling some debate, rationalising price moves in such a way is usually unhelpful from an investment perspective.  The facts around the UK’s comparative growth, inflation and interest rates situation, combined with the sharply weaker path already followed by sterling over the past year, suggest the currency is pretty cheap and could rise from here.  Thankfully, predicting the outcome of the General Election is not a necessary ingredient of that observation.”

Pound breaks through its 200-day moving average for the first time since Brexit vote

What does the general election mean for the pound? 

Stephen Gallo, European head of FX strategy at BMO, argues that a general election is a positive development for the pound. 

He added: "Yes, the election adds a layer of uncertainty, but from what I can see, the Conservative Party stands to pick up a decent amount of seats, which will ultimately strengthen its current 17-seat majority. 

"I would therefore expect the current working majority to expand by a number of seats after the June 8 result, although a key risk, which I would not rule out, is that the majority is thinner. Recent by-elections have generally been in the Conservative Party's favour, and Labour is still in an internal crisis." 

Credit: BMO

As such, he thinks as the FX market moves to price in a wider Conservative majority as its base case, the pound should be supported as vulnerable short GBP futures positions and short GBP hedges are unwound. 

Pound move in context: Jumps 0.7pc today, but still 14.5pc off its pre-Brexit vote levels

Although the pound has climbed 0.66pc today to $1.2669 against the US dollar after Theresa May called an early election, the local currency is still 14.5pc off its pre-Brexit vote levels. 

Post-election call: Reaction by investors was 'predictable'

The FTSE 100 suffered a torrid start to the week after the long weekend. After nursing hefty losses in early trade, it has extended those in afternoon as the pound strengthened after Theresa May called an early general election. It is currently down 128.63 points, or 1.76pc, trading at 7,198.66.

Market commentator David Buik, of Panmure Gordon, said: "Prior to the announcement Sterling started to slide down to $1.2490, but the FTSE was still sliding – down 90 points due mainly to uncertainty. However post the statement Sterling rallied like a grilse back to $1.2660.  However the FTSE surrendered another 30 points – down 125 at 7202 at 1.06pm, thanks to increasing support for Sterling, which damages the value of so many constituent stocks.

"Also frankly with a P/E ratio of 16.5 times earnings, the FTSE 100 was beginning to look a little rich for many peoples’ blood. So the reaction by investors was predictable."

US stocks set to open lower 

Away from UK markets momentarily, US stocks are poised to open in the red as investors remain on the sidelines due to heightened geopolitical risks and ahead of quarterly earnings. 

Here are the opening calls courtesy of IG: 

Markets tend to like a stronger government 

Carlo Alberto De Casa, ActivTrades chief analyst, thinks the market has confidence in a stronger majority in Parliament for Theresa May.

"We saw evidence of this as investors started buying just minutes after she announced there would be a General Election, which is why we saw the climb back up following the rise and dip this morning shortly before her statement."

He added: “Markets tend to like a stronger government – they are predicting one in the UK due to the apparent weaker situation Labour is in – and we have seen in Turkey what a similar situation can do for the currency.

“However, longer term there is still uncertainty in the markets over the possible complications of Brexit and a possible slowing down of the economy, so while the short-term bounce is a good one, the picture further down the line might not be quite as rosy for sterling.”

Europe's volatility index hits highest level since December

Europe's volatility index has touched its highest level since December. The first round of the French presidential elections were already firmly in focus, but Theresa May calling an early general election has also added to volatility levels. 

European shares hit three-week low amid jitters over general election

European shares slipped to a three-week low this afternoon after Theresa May called for an early election. 

Shares in the region are already under pressure as the first round of the French presidential election looms. 

The pan-European Stoxx 600 is down 0.8pc, while the German DAX fell 0.6pc and the CAC in Paris lost 1.2pc. 

Euro Stoxx 600 hits three-week low as general election jitters and looming French election weigh Credit: Reuters

 Mike van Dulken, of Accendo Markets, said: "European equity markets are negative as the UK Prime Minister adds a snap UK general election to simmering global geopolitics. This has made matters worse for the FTSE by sending GBP to multi-week highs versus the USD and EUR, exacerbating the FX hindrance on its big international component and compounding commodity sector weakness. This as we prepare for the next instalment of results from US banking majors before our own update us at the end of the month." 

Snap general election: What the experts have to say? 

London Capital Group's Jasper Lawler thinks the pound has seen its worst. 

He added: "We expect the re-election of Theresa May with a larger majority and bigger mandate to take on the EU in Brexit negotiations. A weakened Labour party under Corbyn and a very pro-EU SNP could see a large drop in support, significantly changing the UK political landscape again." 

However, Mr Lawler highlights that the main drawback to a snap election is the potential for additional uncertainty.

"We believe the election may reduce uncertainty since the Tories would likely run away with it, reinforcing the existing power structure. If the SNP does see a  big drop in support, the snap election will also null any chance of InyRef2. Our interpretation is that markets have reluctantly accepted Brexit so a snap election should just help Theresa May’s chances of getting a better deal for the UK." 

Dean Turner, Economist at UBS Wealth Management said: “Theresa May’s surprise announcement has caught markets on the hop today, but they are not overly concerned by the prospect of a snap election. The muted response in sterling, gilts and UK equities suggests markets are savouring the possibility of much-needed clarity around the Government’s Brexit negotiation stance."

Mr Turner added that the Prime Minister has been softening her rhetoric on Brexit in recent weeks and as such, he expects her to use this election to secure a mandate for future direction of talks. 

“Although disruption to the UK economy in the short-term is still likely, we believe that the longer-term outlook is brighter.”

Claus Vistesen, of Pantheon Macroeconomics, says everything is up in the air following the general election announcement. 

He added: "May is attempting to crystallise in order to secure a strong mandate for Brexit negotiations. The polls, however, will undoubtedly be affected by the positions taken by the opposing parties. They now have an opportunity to challenge the government’s position on Brexit, and indeed the decision itself. Until we know what strategy Labour and the LibDems intend to deploy, and how polls react to that, we would be careful making any assumptions." 

Ranko Berich, Head of Market Analysis at Monex Europe,  thinks the explanation for the significant boost in the pound is simple: "hard Brexit was previously almost entirely priced in to sterling, and today’s news introduces a sliver of doubt into the mix".

“The government is obviously very confident that an early election will strengthen its hand, but as we’ve learned time and again in recent years, nothing is for certain when voters head to the polls. Today’s announcement adds enough uncertainty into the political outlook that a sterling friendly “soft Brexit”, previously discounted by markets, is now again a possibility if May discovers in June she has overplayed her hand.”

Pound traders warming to Brexit? 

Kathleen Brooks, of City Index, questions whether traders are now warming to Brexit: 

"The initial sell off in the pound was likely a bit of nervousness that Theresa May could be about to resign, once that fear was put to bed we have seen the pound surge to fresh highs above 1.2600, the highest level since early February. As we have seen with the Turkish lira, political stability is key theme that can drive currencies higher today, and pound traders obviously see PM May as a stabilising force."

Brooks reckons that the market may also have changed its view on Brexit, after the massive pound sell off on the back of the referendum last year, as today the market seems to be welcoming Theresa May’s decision to try and solidify her leadership at the helm of the UK’s Brexit mission.

She added: "If the market is taking the view that it is better the devil you know, and with the odds massively in Theresa May’s favour that she will win this election, we could see the pound catch a bid as we lead up to June 8th, and our 1.30 forecast for GBP/USD doesn’t seem that outlandish." 

FTSE 100 extends losses, heads for worst day since Brexit vote

The FTSE 100 has extended its losses and is now on track for its worst day since the immediate aftermath of the Brexit vote. 

The blue chip index is currently off by 116.60 points, or 1.59pc, trading at 7,210.88, that marks its biggest decline since June 27 last year when the index tumbled 2.55pc. 

Analysts react to general election announcement

Here's what the experts had to say after  Theresa May called a general election on June 8: 

Aberdeen Asset Management Investment Manager Luke Bartholomew

Although the pound sold off ahead of the announcement and rallied back to a two-and-a-half month high following May's statement, Mr Bartholomew reckons it will take some time for investors to digest the effects of the election in the next few days. 

He added: "A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely. The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit. That would be welcomed by financial markets. There’s also a decent chance of some volatility now with imminent elections in both the UK and France.”

Anthony Cheung, senior associate Amplify Trading

He reckons the markets are enjoying a short-term relief rally, but investors could see it as more of a negative as time progresses. Listen to his briefing here: 

 Dean Popplewell, VP of currency analysis at OANDA

Although the pound has recovered its losses and is now trading up 0.53pc on the day, Mr Popplewell says stress relating to the French election remains clear in other parts of the currency market. 

Time to update your calendar

Pound hits two-and-a-half month high against dollar 

And up it goes. The pound has now extended its gains after Theresa May called a general election for June 8, hitting a two-and-a-half month high. 

It is currently up half a percent on the day at $1.2629, having swung to an intraday low of $1.2550 ahead of the Prime Minister's statement. 

Against the euro, the pound hit a fresh eight-week high of 84.38p per euro. 

Pound hits two-and-a-half month high against the dollar after May calls snap general election Credit: Bloomberg

Political curveball by May boosts pound

Peter Ashton, Managing Director of Eiger FX, said: “The political curveball delivered by the Prime Minister that a General Election will be held on 8 June provided an immediate boost to the Pound. 

“The markets were quick to price in greater economic and policy stability under what they expect will be a significant majority given the weakness of the opposition.

“There is still huge uncertainty surrounding the implementation of Brexit but a strong majority party will help to provide a degree of stability while we negotiate the choppy waters ahead.

"After last week’s strong jobs data this is yet another positive development for Sterling.”

Cost of hedging pound jumps after general election announcement

The cost of hedging against against sharp swings in sterling jumped to its highest level since March 30 after Theresa May called a snap general election on June 8. 

Pound-dollar two-month implied volatility leapt to 8.67pc following May's announcement. 

Pound recoups bulk of its losses

David Cheetham, XTB, weighs in on the wildly volatile ride the pound has been on this morning: 

"The pound has recovered from some earlier jitters when news of a statement from the PM sent sterling falling to its lowest level of the day as the rumour mill went into overdrive as to what the announcement may pertain. Since the election was confirmed sterling has moved off its lows and recouped the vast majority of the decline."

It is currently trading down 0.14pc on the day at $1.2570.

Pound bounce derived from general election announcement and prospect of easier domestic ride for Brexit negotiations

Mike van Dulknen, of Accendo Markets, highlights that the bounce in the pound after Theresa May announced a snap general election on June 8 was derived from the announcement itself and prospect of "an easier domestic ride for Brexit negotiations". 

Theresa May announces snap general election: Markets react

Here's a quick look at how markets have reacted to Theresa May's announcement of a general election on June 8: 

  • Pound rises to $1.2593, up from around $1.2550 before May began speaking;
  • FTSE 100 holds near session lows, down 1.2pc;
  • FTSE 250 index down 0.74pc;
  • UK 10-year gilt yields rise by one basis point on announcement. 

Pound recovers after Theresa May announces general election on June 8

The pound recovered its losses after Theresa May announced that she wants an early election on June 8. 

It is currently trading almost flat on the day at $1.2582.

Credit: Bloomberg

Head over to our live politics blog for the latest: Theresa May announces snap general election on June 8  

Pound recovers some ground on talk of UK general election 

The pound has recovered some ground on talk of UK general election on June 8. 

It is currently down just 0.23pc at $1.2556 against the US dollar. Against the euro, it has also trimmed its losses, down now just 0.25pc.

Credit: Bloomberg

Rumours of June 8 general election

Laura Kuenssberg of the BBC has tweeted reports of a general election on June 8: 

Theresa May to make statement in Downing Street at 11.15am amid rumours of early general election

Snap election rumours drive the pound lower 

Joshua Mahony, of IG, highlights that Theresa May's statement is going to be "a major driver of volatility today" as the pound languishes near $1.25 ahead of her statement at 11:15. 

FXTM Vice President of Market Research Jameel Ahmad says there are unconfirmed rumors at this stage circulating  that Theresa May might be stepping down, while there are other reports going around that this could be linked to the announcement of a UK general election.

He added: "Truth be told, nobody is really that aware of what is going on but this uncertainty has caused a reaction in the sterling."

Anyone for a game of 'Pound Pinball'? 

ETX Capital: May for May?

The pound has suffered a sharp fall hurt by event risk of Theresa May's statement scheduled for 11:15. It is currently down 0.46pc on the day, changing hands at $1.2526 against the US dollar. 

Neil Wilson, of ETX Capital, said: "The rumour mill says it’s going to be a snap election – that would throw up a huge cluster grenade of political risk, uncertainty and potential volatility in the markets. At the extreme this could even spark a reversal in the entire Brexit process.

"May would have to get parliament to agree to this but we know most MPs are positively brimming to head back to the polls to seek fresh mandates in the wake of the Brexit vote. The Tories have a thumping majority in the polls at the moment so the PM may just be gambling on significantly boosting her rather slender majority in Parliament.

"Sterling dived half a cent against the dollar on the news having earlier touched on an eight-week high. Cable was last at 1.2535. With French elections already raising uncertainty this would add a new dimension to the volatility in European assets.”

Theresa May to make statement in Downing Street at 11.15am

Here's our full story by our political correspondent Jack Maidment about the impending announcement from Theresa May, which has caused the pound to drop sharply: 

Theresa May is due to make a statement in Downing Street at 11.15am amid speculation the Prime Minister could call an early general election. 

Mrs May is scheduled to make her statement immediately following a meeting of her Cabinet. 

The BBC's political editor Laura Kuenssberg confirmed the news and said such a statement is "only normally used for most serious moments". 

Downing Street is yet to comment on what Mrs May will say. 

Statements outside Number 10 are highly rare and usually reserved for only the most significant announcements. 

The last time Mrs May spoke to the nation in front of the famous black door was after she succeeded David Cameron as PM. 

Meanwhile, Mr Cameron used the setting to announce his resignation in the immediate aftermath of the EU referendum result. 

Mrs May appears to have come to a decision on a major issue after enjoying a five day walking holiday with her husband Philip in Snowdonia over Easter. 

Read the full story here

UK 10-year gilts fall to lowest level since mid-October

UK 10-year gilts have also slumped to their lowest level since mid-October as investors await Theresa May's statement. 

They are currently down 3 basis points on the day, at 1.015pc. 

Pound extends losses as markets await statement from PM 

The pound has extended its losses as markets await a statement from Theresa May at 11:15. Her office gave no indication on the subject of Tuesday's statement.

The local currency fell by as much as 0.64pc against the dollar to $1.2505, while it fell by as much as 0.53pc against the euro to €1.1751, having traded at an eight-week high of €1.1833 earlier today. 

Pound surrenders gains as investors await Theresa May statement

Well that didn't take long, the pound surrenders some of its gains after it was announced that Prime Minister Theresa May will give a statement outside Number 10 Downing Street at 11:15am this morning. 

Worries about the looming French election and the US economy has lifted the pound to an eight-week high against the euro and a three-week high against the dollar in early trade. 

Credit: Bloomberg

The pound which hit an intraday high of $1.2608 earlier today against the US dollar, is now trading down 0.37pc on the day at $1.2537.

FTSE 100 drops to seven-week low

The FTSE 100 slumped to its lowest level in seven weeks this morning, as mining stocks weighed on the blue chip index. 

Record steel production and ballooning iron ore stockpiles in China stoked fears of a supply glut, causing miners to falter 

Meanwhile, the pound strength is also hurting the index. 

It tumbled by as much as 1.11pc to 7,246.28, marking its lowest level since February 27 when it touched 7,239.60.

All to play for in France

Jeremy Cook, of World First, flags that the euro and the yield levels on French debt, the two barometers of risk, have done little over the past week or so.

He added: "Although any further gains for Jean-Luc Melanchon may make the euro sell off into the Friday close ahead of Sunday’s vote."

Expect a rally if Le Pen is obliterated in the first round 

The latest polls suggest that support for the Far Right candidate Marine Le Pen is starting to slide, which has helped Francois Fillon to become the front runner to join Emmanuel Macron in the second round, which takes place on May 7.

However, Kathleen Brooks, of City Index, highlights that polls are "far from reliable predictors of vote behaviour", adding that if Le Pen losses the first round, we can expect a rally. 

Brooks added: "Since Marine Le Pen is the most euro-toxic of all of the candidates, one can assume that a first round eradication for her Front National Party could trigger a relief rally in the euro in a week from now. We mentioned in our previous note on the French election that Francois Fillon’s candidacy was worth a second look. He has a solid block of conservative voters, whose numbers may be swelled if it is a means of keeping Le Pen out of the Elysee Palace. Added to that, French voters are surprisingly immune to scandals, such as those that have plagued Fillon’s candidacy.

"While the latest odds still give independent Emmanuel Macron a healthy chance of winning in May, his odds have fallen as those of Fillon and Far Left candidate Melenchon have surged. If we get a Macron/ Fillon second round run-off, this is likely to be considered “market friendly”, triggering a rally in the euro, the Cac, but also in the German Dax and Eurostoxx index, which have had decent correlations with the French bond yield this year."

Expect increased nervousness and higher degree of volatility ahead of French elections

Anthony Cheung, of Amplify Tradingthinks uncertainty surrounding the French election will increase going into the first round of voting on Sunday. He suggests investors should watch gold prices and the Japanese yen. 

He predicts increased nervousness to the market and a higher degree of volatility ahead of the election.

Mr Cheung points out that ahead of political events a lot of the polling starts to converge and that exacerbates the whole uncertainty of the situation. 

Listen to Mr Cheung's full morning briefing which focuses  on the French election, North Korea, and what to expect from the week ahead: 

Supply glut fears weigh on mining stocks

The FTSE 100 suffered a steep fall in early trade, tumbling by more than 1pc, as miners came under heavy pressure. 

Record steel production and ballooning iron ore stockpiles in China stoked fears of a glut, with iron ore futures in China sliding by more than 3pc to their lowest level since January. 

Anglo American lost 3.2pc, Glencore surrendered 3pc, BHP Billiton tumbled 2.9pc and Rio Tinto fell 2.8pc. 

Greek debt must be sustainable for IMF to join bailout

The International Monetary Fund will not take part in a bailout programme for Greece if it deems the country's debt is unsustainable, the international lender's chief Christine Lagarde said in an interview published on Tuesday.

Greece needs to implement reforms agreed by euro zone finance ministers earlier this month to secure a new loan under its 86 billion-euro ($91.58 billion) bailout programme, the third since 2010.

 IMF Managing Director Christine Lagarde  Credit: Reuters

The loan is needed to pay debt due in July, but talks continue and the IMF has not yet decided whether to join the bailout. The fund's participation is seen as a condition for Germany to unblock new funds to Greece.

"If Greek debts are not sustainable based on IMF rules and reasonable parameters, we will not take part in the programme," Lagarde told German newspaper Die Welt when asked if the IMF would take part in the plan if Greek debt is not restructured.

Report from Reuters

Pound hits eight-week high against euro; three-week high against pound

The pound touched its highest level against the euro in eight weeks of 84.52p per euro, up 0.2pc on the day, in early trade. 

Against the US dollar its trading at a three-week peak, above $1.26 and 0.3pc higher on the day. 

Pound hits eight-week high against the euro Credit: Bloomberg

Turkish dollar bonds rise after referendum victory for Erdogan 

Turkish dollar bonds rose across the curve on Tuesday to five-month highs after President Tayyip Erdogan's narrow victory in a referendum on constitutional change granted him sweeping powers.

The most-traded 2030, 2034, 2036 and 2045 issues rose up to 0.5 cents according to Tradeweb data, to hit their highest levels since early November 2016.

The constitutional changes could keep Erdogan in power until 2029 or beyond. Late on Monday the cabinet extended a state of emergency by three months, the third such extension since a failed coup attempt last July.

Turkish five-year credit default swaps were trading at 233 basis points, according to IHS Markit data, unchanged since close of business on Friday at a two-week low.

Report from Reuters

European bourses tumble as miners and oil stocks weigh

European shares came under heavy selling pressure in early trade as commodity-related stocks fell sharply following the long weekend. 

Meanwhile, the pound strength weighed on the FTSE 100. 

Here's a snapshot of the current state of play in Europe: 

Credit: Reuters

 Mike van Dulken, of Accendo Markets, said: "​Calls for a negative open come after a mixed return by Asian investors following the long Easter weekend, at odds with last night’s positive close on Wall Street. Geopolitical concerns may be off the boil and safe haven assets off their best, but they continue to simmer be it from a nuclear standpoint on the North Korean peninsula or politically in France and Turkey and across the Atlantic with the US Treasury secretary suggesting Healthcare bill problems will delay tax cuts." 

Agenda: Geopolitical risks continue to weigh

Good morning and welcome to our live markets coverage. 

Overnight in Asian trading, China's stock indexes fell for a third consecutive session on heightened concerns over regulation and the sustainability of the country's economic growth. 

The CSI300 shed 0.5pc to close at 3,462.74 points, while the Shanghai Composite index ended the day 0.8pc lower at 3,196.71.

Meanwhile, as geopolitical risks continue to weigh, the South Korean won tumbled to a one-week low. Its latest slide came as US Vice President Mike Pence reassured Japan of Washington's commitment to reining in North Korea's nuclear and missile ambitions. 

Macroeconomic data is relatively light today after the long weekend. US industrial production data will be released this afternoon. 

Previewing the data release, Mike van Dulken, of Accendo Markets, said: "US Industrial Production is seen continuing its rebound from Jan's flirt with contraction to trouble Dec’s near 2-year best although Manufacturing may go the other way while Capacity Use improves."

Also on the agenda: 

Trading update: Ashmore Group

AGM: Apax Global Alpha

Economics: building permits (US), housing starts (US), industrial production m/m (US), NAHB housing market index (US), WPI m/m (GER), ZEW economic sentiment (GER)

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