The City takes stock

by Reg Hoare

Since the election campaign launched, the Stock Market has wobbled less than the major parties’ election campaigns. Despite sterling taking a brief dive when a rogue poll predicted a sharp narrowing of the Conservative lead, the stockmarket hit another all-time high today.

In the City you cannot find an analyst who seriously believes the Conservatives might lose the election. They are betting on a strengthened Mrs May able to deliver a better political and economic Brexit outcome with an increased majority. The market loves the certainty that a Tory Government should now be in power until 2022 (after three very uncertain elections between 2010-2016).

However, there is never a universal downside. If Labour form a government, the subsequent slide in sterling would be hugely beneficial to the dollar and euro-earning companies that make up such a large part of the FTSE100 – hence the bet is currently a win-win one in the short term.

At this election, that capitalist vs socialist choice is as stark as it has been for nearly 35 years (it is worth reflecting for younger voters that one would have to be at least 51 now to have voted in the 1983 general election). Only during the Blair years has business and the City wobbled towards Labour – indeed some flirted openly with Blairism during that time, apparently seduced by commercial imperatives and Cool Britannia.

The City’s convictions will have been cemented by Labour’s manifesto – fully costed in the former’s view by Magic Money-Tree, currently chief economist at the Bank of Wishful Thinking.

To CEOs nationalisation is not just a dirty word but an economic disaster area. Financial transaction taxes for a red-blooded trader are toxic disincentives to trade securities.

Higher corporation and personal taxes drive financial institutions and their aspirational talent abroad while not raising nearly as much as required to fund spending commitments. Jeremy Corbyn’s narrative of a ‘reckoning’ for ‘ greedy bankers’ won’t make new friends.

However, the Conservatives are not receiving universal approval. Business doesn’t like additional workers’ rights and proposed intervention in industry such as energy price caps add to corporate costs and sector specific risks. The lack of apparent commitment to lower taxes hasn’t helped the mood either.  The City is arguably in the ‘re-leaver’ camp (those that voted remain but now support a clean Brexit) and will empathise with Mrs May’s ‘no deal is better than a bad deal’ mantra.

The real reason stockmarkets and traders’ optimism are rising is not linked to this Election. The little Q1 dip in the UK growth rate (and parallel spike in inflation) is running its course as predicted, with stronger growth and inflation past its peak in prospect through 2018.  The pound remains volatile but resilient, the oil price is relatively stable, interest rates rising very benignly if at all. Meanwhile, global growth (even in Europe and emerging markets) is picking up and Trump’s economic policies, despite his other travails, remain strongly pro-growth.

Can anyone give me a ride to Ascot, Wimbledon or Lord’s?