Breakfast Today

"With just a week to go to Polling Day, another YouGov poll has indicated a further erosion of the Conservatives' lead over Labour to just 3 points. Just for good measure, other polls are giving the Tory Party a moderately comfortable win. Where does the truth lie and can the polls, misleading in the past, be expected to be any more accurate this time ? The bookmakers' betting odds still point to a Conservative win but the much lower odds being offered on the Conservatives compared to the Labour Party has, unsurprisingly, made a hedge bet for Labour a much more active option. According to the Parliament website, at the end of the last parliament on the 3rd May 2017, the number of seats held by each party out of the total of 650 was as follows :- Conservative Party - 330 ; Labour - 229 ; Scottish Nationalists - 54 ; Liberal Democrat - 9 ; Other parties - 28 ; Total number of seats - 650. In fact, after adjustments, the Conservatives had a working majority of 17 for passing legislation before this General Election was called although 'rogue' back benchers have tended to reduce this margin in reality. Hence, the reason for Mrs May wishing to call this Election to try improve her 'wriggle' room. Whatever the final election figures, the actual outcome will still depend on the ability of parties to form workable coalitions in order to carry votes through the House of Commons.This background to the election is important because, if the result proves to be closer than expected, it will carry important implications for the stock market. The options are starkly polar. An effective win for the Labour Party (through some form of cooperation with the SNP and other parties) will usher in radical new spending measures and a sharp increase in national borrowing. This can be expected to weaken Sterling. For those expecting this outcome, the attractive investments – as was the case after the Brexit vote – will be companies with foreign (non-Sterling) earnings such as the miners, the oil & gas groups and, possibly, subject to President Trump's intentions towards the sector, some pharmaceutical groups. Investment in gold may look attractive too. Given the Labour Party manifesto pledge to nationalise some utility groups (initially water), share price volatility here should be expected although the eventual take-out price would have yet to be determined. Given the prospect of yet higher inflation from Sterling weakness and a pick-up in the rate of Government Bond (Gilt) sales to fund Labour's proposals, downward pressure on bonds should be expected. That is, unless concerns about a sharp slowdown in economic activity means that the Bank of England feels moved to reduce interest rates further. It is generally expected that City will welcome any result that enables the Conservative Party to head up the Brexit negotiations in which case a general relief rally would be likely. However, given a corresponding rally in Sterling, the non-Sterling earners referred to above should be expected to underperform. Despite the uncertainty about how accurate