The shock election result has fuelled speculation that Britain may aim for a less ‘hard’ Brexit than Theresa May had planned.
Kalum Pickering of Berenberg Bank explains:
On the continent, most observers have taken the UK election result as a rebuke of Theresa May’s hard Brexit rhetoric of the “no deal is better than a bad deal” kind.
For example, EU Commission Öttinger has expressed hope that the UK may now agree to stay in the Customs Union and the Common Market, possibly by joining EFTA. To remain in the Common Market and thus maintain preferential access to the EU27 market (except for some financial products where regulators will insist that some activities have to be carried out under the direct sway of EU regulators), the UK would have to accept the free movement of labour and continue to pay into the EU budget like EFTA members do.
Whether or not a Tory-led government could agree to that remains a very open question, though, to put it mildly.
Indeed! And in the last few minutes, Brexit secretary David Davis has played down the idea that the government could soften its stance – insisting that leaving the EU meant leaving the single market.
More in our Politics Live blog:
Traders will be watching Wall Street nervously when it opens later today, to see if technology stocks keep falling.
Apple fell by 4% on Friday, while Alphabet (Google), Microsoft, Amazon and Facebook all shed 3% – wiping almost $100bn off their market value.
The selloff comes after a long surge in tech stocks, so investors are wondering if the rally is over.
Kathleen Brooks of City Index says other assets could be spooked….
Friday’s sell off in some of the US’s biggest tech names was sharp and severe on Friday. But was this just a bit of profit taking after a note from Goldman Sachs questioned the $600bn increase in some tech firms’ market cap in the past year?
This is an important question that we need answered as tech stock weakness is having an impact on other growth assets today. The MSCI emerging markets index fell on Friday, yet the Aussie dollar, which is correlated with growth assets, was relatively stable on Monday.
The BBC has a good take on the IoD’s business confidence survey:
The uncertainty caused by the general election has led business confidence to sink “through the floor”, according to a lobby group.
A snap poll of 700 members of the Institute of Directors found a “dramatic drop” in confidence following the hung parliament.
Members saw no clear way to resolve the political impasse quickly, the IoD said.
However, it found there was “no desire” for another election this year….
Europe’s stock markets are a sea of red this morning, as investors digest the tumble in UK business confidence in the last couple of days.
Shares are being pulled down by worries over UK politics, and the selloff in the tech sector.
Connor Campbell of SpreadEx says there isn’t much optimism in the City this morning.
Falling around half a percent the UK index found itself back below the 7500 mark, if only just, as the Institute of Directors warned that its members were feeling pretty damn pessimistic about the state of the UK economy in the next 12 months.
The pound, meanwhile, neither continued last week’s decline nor substantially recovered any of those election-losses, opening 0.1% higher against the dollar and flat against the euro.
The FTSE 250 index, which is more UK-focused than the FTSE 100, has dropped by 50 points (or 0.25%) in early trading to 19,719.
The IoD’s gloomy warning on business confidence is helping to keep a lid on the pound this morning.
Sterling is hovering around $1.274, close to Friday night’s close. It tumbled by over two cents when the election exit polls came out on Thursday night.
Craig Erlam, senior market analyst at OANDA, warns that the pound is vulnerable to political uncertainty, as prime minister May tries to cling onto power.
With Theresa May scrambling to repair the self-inflicted damage suffered as a result of the election, there remains a huge amount of uncertainty around her position and with only a week to go before Brexit talks with the EU begin, I feel there may be a few more twists to come yet.
May has not delivered the strong and stable government she wanted and instead looks weak and vulnerable. I find it hard to see how she recovers from this.
Mike van Dulken of Accendo Markets agrees, saying:
Sentiment remains dented by politics following the UK’s hung parliament and shift in the balance of UK political power.
European stock markets have opened in the red, with the FTSE 100 losing 27 points (or 0.4%).
Technology stocks are the biggest fallers, following a selloff on Wall Street on Friday night.
at 3.18am EDT
Manish Singh of CrossBridge Capital, an investment advisory firm, isn’t surprised that business confidence has fallen since the UK election.
He says many business leaders are now pondering the prospect of Jeremy Corbyn becoming prime minister, after he smashed expectations and gained 32 seats.
Speaking on Bloomberg TV, Singh says:
If you are a business, you really need to start thinking ‘what is in the Labour manifesto?’….
It will have some businesses worrying about Mr Corbyn’s policies.
Labour’s manifesto included raising income tax on those earning over £80,00 per year, increasing corporation tax, and renationalising the water companies, as well as free childcare, ending the freeze on welfare benefits and abolishing tuition fees.
Singh says political instability can deter businesses from investing, especially when the Brexit talks are also hanging over them.
But he also agrees that younger voters are right too feel aggrieved, as yound people in Europe will be poorer than previous generations.
The agenda: UK business optimism plunges after hung parliament
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European stock markets are set to fall this morning, as evidence piles up that Britain’s mounting political uncertainty is hurting the economy.
The Institute of Directors have issued a stark warning that business optimism has plunged after Theresa May lost her House of Commons majority last week.
A new survey of IoD members found that 57% are either quite pessimistic or very pessimistic about the UK economy over the next 12 months. Just a fifth described themselves as optimistic — which gives a ‘net confidence’ score of minus 37.
That’s a serious deterioration compared to the previous month, when 34% were optimistic and 37% pessimistic.
The poll, conducted over the weekend, found that many business leaders are alarmed by the prospect of a hung parliament, just as the Brexit negotiations begin.
Stephen Martin, director general of the Institute of Directors, says British politicians need to urgently refocus on the state of the economy.
“It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy.
The needs of business and discussion of the economy were largely absent from the campaign, but this crash in confidence shows how urgently that must change in the new government.
This chart might focus a few minds in Westminster:
The IoD’s survey isn’t the only cause for concern this morning.
Visa have reported that household spending fell last month, for the first time in almost four years.
It highlights how consumers are being squeezed by rising inflation and political uncertainty, and cutting back on non-essential items.
As things stand this morning, May’s grip on Number 10 is looking precarious, with insiders saying she cannot lead the Conservative Party into another election.
Yesterday she was savaged as a “dead woman walking’ by former chancellor George Osborne (who seems to be enjoying his new career in journalism).
But the game isn’t over, yet. Later today May will appeal to her MPs for support, in an attempt to remain as prime minister.
Our political editor Heather Stewart explains:
The prime minister is expected to signal to her parliamentary colleagues that she will run her government in a more collegiate, less controlling way, after sacrificing her two closest advisers, Fiona Hill and Nick Timothy.
With many backbenchers blaming May for the party’s poor performance at the polls, one senior Conservative said she would have to give a “barnstorming” performance at the meeting of the party’s 1922 committee of MPs to hold on to her job.
Spread-betting firm IG expect the main European markets to fall by up to 0.5% this morning.
While Britain is gripped by May’s crisis-of-her-own-making, France’s Emmanuel Macron is showing us how to lead a country.
The French president’s En Marche party is on track for a landslide win in parliamentary elections, giving him enough muscle to start pushing through economic reforms.
There’s very little in the economic calendar today, alas.
at 3.02am EDT