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She “Chirac-ed” It!

09 June 2017 by lberuti

With a result that was unthinkable a few weeks ago, Britain’s general election has inflicted significant damage on the Conservative Party. Far from achieving a landslide or even bolstering her majority, in a move that French people will find reminiscent of Mr Chirac decision to call early elections in 1997, Mrs May has turned a 17-seat advantage in parliament into a 7-seat shortfall. The result is a hung parliament and the Conservatives will need the support of the Democratic Unionists to achieve a majority to pass even the most basic legislation, let alone the complexities of Brexit. The result plunges UK politics into a period of extreme uncertainty, and the Pound dropped almost 2% as soon as exit polls predicted a hung parliament and never really recovered – it ended the session down roughly 1.7% against the USD and the euro -. Meanwhile, credit, after an initial knee jerk reaction wider, took a much more sanguine approach. Without a clear mandate for the Conservatives’ “harder” Brexit, a “softer”Brexit stance could emerge, and credit investors took it as a bullish signal. All indices are now trading at the tightest levels of the last couple of years. iTraxx Main – which is now trading through CDXIG for the first time in 6 months – had not closed below 60bps since July 20th 2015. It ended the session a shade tighter than 59bps.