Defensives outperform
There has been a clear shift into haven trades to protect against any fireworks following key events on Thursday. Brits heading to the polls, central bankers deciding interest rates in Europe and testimony from FBI Director Comey all pose a threat. With three big events clustered in one day, it only takes one to go way to set things off.
Stocks mostly retreated with a tendency for more defensive areas of the market to outperform. Utilities, a typical haven when staying invested in stocks rose over half-a-percent on the Euro Stoxx 600 while most other sectors were lower. The fact that equity indices still remain very buoyant right up to polling day in the UK demonstrates a quiet confidence on behalf of investors.
Investors shun UK domestic shares
A 1% decline in the FTSE 250 while FTSE 100 was essentially flat on the day was notable. Investors appear to be shunning UK domestic shares before the election. Within the broader FTSE 350, retail shares were biggest decliners, which are typically closely tied to the health of the British economy. While a Labour victory remains a distant outlier, polls would indicate a hung parliament is possible. The fear is that with the country entering at least two-years of economic uncertainty because of the Brexit negotiations, higher personal and business taxes under a new government could tip the economy over the edge.
Pound in the election crossfire
The pound failed to consolidate early gains and gave up the ghost on election uncertainties. Rising uncertainty due to the narrowing gap between Tories and Labour in the latest election polls, has mainly increased the volatility in the pound market and wiped out a lot of the short-term visibility.
Japanese yen takes out 110
The Japanese yen gained the most against the greenback with investors preferring to move their capital into safer currencies and gold. The 110.00 mark is expected to act as a resistance to the current risk-off decline.
Gold moves to 2017 highs
Ongoing weakness in the US dollar, a general unwinding of ‘Trumpflation’ trades and another jolt of political uncertainty has sent gold to its highest levels this year. Spot gold prices rose above $1295 per oz. Investors keep coming back to the old relic.
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