UK equity markets ruffled by May’s General Election call

Tuesday, 18 April: FTSE indices were pummelled lower after the long Easter break following a surprise announcement from No. 10 Downing Street. PM Theresa May announced a snap General Election scheduled for June 8th this year, claiming divisions at Westminster risked hampering Brexit negotiations. This was despite Mrs May repeatedly insisting she would not seek a general election before the scheduled 2020 poll, but with a working majority of just 17 in the Commons a vote for a Conservative Government in June is thought to give the Prime Minister a much stronger position in Brexit negotiations. Before the 11.15am announcement, FTSE indices were struggling for direction before both the FTSE 100 and 250 shaped to slump 2.46% and 1.16% lower into the close. Sterling spiked higher on the announcement to trade 1.82% higher against the US dollar and 1.43% higher against the euro at the time of writing. Equity investors seem to be more concerned about another political hurdle to overcome in an already crowded 2017 political calendar with the global nature of FTSE index earnings, whilst the pound was buoyed by the unwinding of a record sterling short position on the news and perhaps the increased likelihood of a better Brexit deal for UK plc.

UK cereal firm Weetabix announced today that they would be bought by US firm Post Holdings for $1.8bn(£1.4bn). This is the most notable cross-border acquisition since Japan’s SoftBank acquired British technology specialist ARM Holdings post-Brexit(18 July 2016). Acquisitions are cheaper for overseas investors acquiring UK companies given a steep sterling devaluation over ten months ago against the yen, US dollar and euro. Weetabix, made in the UK since 1932, was put up for sale in January by China’s Bright Food which bought a 60% stake in 2012. This was the largest acquisition by a Chinese firm at the time, but the firm struggled to get a foothold in the Chinese market despite doubling sales in the region in 2016. This was because Chinese consumers prefer a hot, rice-based breakfast to cold cereal. No doubt the new owners will look to trim costs in this rising inflationary environment we find ourselves in, but any meddling with the recipe will likely be looked on unfavourably by loyal UK customers.

ICAEW accounting survey concludes that half of UK businesses that have seen rising input costs plan to pass them onto the consumer or find cheaper suppliers. A poll of just less than 800 businesses in commerce and industry also found that most are reluctant to curb investment, despite uncertainty regarding the Brexit vote.

Leave a Reply