(Martin D. Weiss is on vacation this week. Mark Najarian, managing editor of Money and Markets, is filling in.)
Well, it’s clear what the markets thought of the shocking election result in the U.K.
The pre-vote polls said it was going to be an unbelievably tight result with no clear-cut winner. The polls were wrong. The center-right Conservative Party of Prime Minister David Cameron came out of the general election with a stunningly complete victory, thrashing the Labour Party of Ed Miliband and now will rule with a majority of Parliament seats.
Within minutes of the opening, the U.K. stock market surged nearly 2 percent, and the British pound jumped almost as much. The markets couldn’t be happier with the business-friendly Conservative Party victory. But even more, perhaps, investors were cheered by the fact that it was a clear victory. No coalition needed (like in 2010), no weeks of uncertainty, no behind-the-scenes maneuvering. And, no dramatic swing away from austerity, as a Labour government would likely have pushed.
“The decisiveness of the results is a big surprise,” James Beadle, a Monaco-based British investor, told Money and Markets. “Markets are clearly relieved that the results are decisive, and that the winning party sits right-of-center. Had Labour won, the market would have certainly suffered from fears of economic mismanagement and low-growth policies. Had the result been less decisive, it would have suffered the uncertainty of a protracted negotiation to form a coalition.”
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| David Cameron and his wife celebrate election victory. |
A party needs 326 seats in Parliament to have a majority, meaning that the leader of the party has a right to form a government. In 2010, the Conservatives were the winners, but without a majority, and they were required to form a coalition with some unlikely partners, the Liberal-Democrats. But the Conservatives this time have taken at least 327 seats, and Cameron was hailing his party’s big victory and vowing to bring the country together (of course, all politicians of all parties say the same thing).
As the U.K. swings more to the left than the U.S., the Conservative Party is not as conservative as the Republicans in the U.S., and the Labour Party is generally more liberal than the Democrats. But the basics are the same: The Conservatives favor tax cuts, austerity, strong defense and have doubts about EU membership. The Labour Party is pro-EU and favors social spending, and especially wants to protect the U.K.’s free health-care system, the National Health Service.
So what does the election mean in the near term.? Here are a few points:
* Referendum on the European Union. Cameron has reluctantly promised to hold a vote on whether the U.K. should remain in the EU. Many have seen the sovereign debt crisis, Greek troubles, economic woes and currency weakness mixed with easy immigration policies and have decided the U.K. would be better out of the union. There is much railing against “European bureaucrats” deciding policies for the U.K., and Cameron, who wishes to remain in the EU (albeit with some modification of the rules), was forced to promise a referendum by the end of 2017.
* Another Scottish referendum or further “devolution.” The Scottish National Party, which favors independence from the U.K., scored major victories in the general election, winning 56 of 59 seats in Scotland. A referendum of Scottish voters in September 2014 came out against independence (55.3 percent “no”), but the renewed nationalism shown in this election could put pressure on Cameron to allow another referendum. Cameron could head off any calls for a new referendum by offering increased “devolution,” i.e. granting more self-rule powers to Scotland.
* Continued austerity measures. Under Labour, government spending would have been boosted and taxes likely would’ve been raised. The Conservatives will attempt to hold corporate taxes low and seek to get a U.K. budget surplus to prepare for any future global financial crises.
* Continued smooth relations with the U.S. Although they theoretically come from opposite sides of the political spectrum, Cameron and President Barack Obama have a decent relationship. Bloomberg Politics put it this way:
“Cameron is someone Obama already knows he can work with and one of the few world leaders whose company he seems to enjoy on a personal level. Obama’s nickname for Cameron? “Bro.” … Earlier this year, while visiting the White House, Cameron sought to back Obama up on getting Congress to hold off on new Iran sanctions in the middle of nuclear talks.”
As a long-time resident of the U.K., I would anticipate a vote to leave the EU would fail, as most people and businesses seem to like the idea of easy access to continental living, jobs and markets. It would also seem that Scottish voters were able to express their nationalism through the general election, and would again vote down independence, although that is less certain.
So going forward, many observers say, the Conservative election victory will likely provide a period of relative stability, which will support assets prices. And any hits to equities or sterling based on fears of an EU departure would provide buying opportunities given that, in the end, an exit would be unlikely.
We have a lot of U.K. readers, and I would be happy to get the views of those and others to the developments, especially after you’ve had a weekend to absorb the news. Click here to join the discussion.
Best wishes,
Mark Najarian
P.S. Ken and Daria Dolan just posted the latest installment in their “Financial Heresies” video series — and it could put a LOT of extra money into your pocket! Click here to view this new video and to catch up on the previous two as well!
{ 22 comments }
Giving right wing parties majorities is like letting the wolf into the hen house and we all know who the wolf (big business)is and who the hens are (the struggling working class) I predict violent future unrest when the government comes and tells the working class they must tighten their belt even more so that the bloated business class can fill their carpet bags with sweat stained pounds.
Labour has been on a long term downward trajectory for many years, and this election is just another sign of that. The working class, union shop country in which Labour did so well no longer exists for the most part.
But you did not mention UKIP, who received almost 15% of the votes but just one seat, almost as many votes as the SNP, PC and the Lib Dems combined! Something is going to have to change, specially as UKIP took so much of the Labour vote. All the big party leaders are going to think about how to get some of that 15% back and to do so will be to adopt some of UKIP policies, even if watered down a little.
A great result for the UK. At last enough people understand the consequences of letting the economically illiterate Labour Part back into power. As for people moaning about our electoral system, a change to it was rejected by the UK population some years ago. Moaning about it being ‘unfair’ won’t change things. Life is unfair in many ways, such moaners need to grow up and accept that fact.
I must focus on the effects of Cameron’s victory. This was gained by the expedient of demonising the Scots to encourage English nationalism. A very strange tactic for someone only 6 months ago was professing to love the United Kingdom and swearing to keep it together. This was simply party over country. What he has succeeded in doing is clearly showing that Scotland has significantly different aims and aspirations to England (particularly London and the South East.). His promise of a referendum on EU membership will be a watershed moment if the majority vote to exit then the Scots who are significantly more pro Europe will move towards another referendum on independence with resultant market instability. One has to also question the economic capability of the Conservatives given that after 5 years of austerity the indebtedness has not only not improved but has got significantly worse. They practice economic policies based on political mindset not longterm financial improvement. Business will like the result in the short term but in the longterm major problems have been created.
In Canada we have a system which gives some self-government to each of our significantly different regions. Each region has its own Provincial Government which is responsible for its own regional affairs. The central government takes care of the things that matter to everyone.
Britain could have regional (Provincial) governments for England, Scotland, Wales and Northern Ireland, plus the existing central government to care for everyones common needs for national security, health and communications, etc.
Those of us – watching the polls for several long weeks – were told the race was ‘too close to call. Either the pollsters should lose their jobs or the race was fixed (and deviously done allowing the vote in Scotland give the appearance of legitimacy). This is easy to do and is done in the USA with ease.
Not sure youre right-talking to someone from Oxford,where Tory vote was less than 20%,who said that residents there wanted out of europe a.s.a.p.
Dear Mark
I think your article is very intuitive however I believe your concerns re the UK leaving the EU and indeed those of big business are misplaced.
I’m a UK citizen presently residing and being tax resident in Spain so I have an vested interest in the outcome of Cameron’s referendum but am far from fearful of a UK exit, therefore :-
Until Cameron’s negotiations have reached a positive outcome by successfully achieving a significant re-balancing of EU laws on Free trade, Immigration, Human Rights and a whole plethora of “red tape†which presently stifles free enterprise, innovation and business in general and/ or the great British public has voted to reject these reforms in favour of leaving the EU it is entirely wrong to pre-suppose the latter would be a disaster for UK business or the UK Expat community.
I believe the underlying British concern with the EU and similarly for those voters of France, Denmark, Netherlands, Spain, Italy and even Germany as demonstrated in the recent 2014 MEP elections – i.e the loss of national sovereignty and ultimately nationality where EU laws totally over rule national laws which previously have served each nation well for many decades if not centuries.
The key problem is that the EU commission seems help bent on believing the only way forward is yet more centralisation and ultimately moving head long into a “federalist state†or to put it more simply a “United States of Europe†. However unlike the “good old USA†the European Parliament lacks the powers of the USA Congress because it does not presently have the basic authority to create laws. Unlike MP’s in the UK Parliament EU elected MEP’s cannot introduce private members bills to change or enact new legislation. Within the EU such powers rest solely with non-elected commissions whilst MEP’s can only vote to accept or reject these without the ability to amend the same other than by lobbying the said commissions.
One simply cannot assume an “Adios UK†without examining how this “federal†approach might adversely impact all citizens of the EU and why the UK position in leaving the EU is NOWHERE near as weak as is often portrayed.
History teaches us the development of the EU can be traced back to the 1952 European Coal & Steel Community which in March 1957 through the Treaty of Rome morphed into the European Economic Communities (EEC) – better known as the Common Market its founding members being France, Germany, Italy, Belgium, Netherlands and Luxembourg. Its original “reason d’être” was to create a level playing field with an enlarged free trade area where cross border controls (import/export duties etc ) were relaxed or eliminated.
Sadly the expensive Common Agricultural Policy having been first conceived in 1958 formerly became an integral part in 1962 being written in stone prior to the UK joining the EEC in 1973 and designed to support the less efficient french farmer at a significant cost to all – butter mountains and milk lakes come to mind.
If the red tape associate with the CAP was not enough the minefield of all bureaucratic red tape nightmares was created in the form of VAT – to replace the far more simplistic individual nations application of purchase or sales tax. If Federalist get their way the rate of VAT will be set centrally being the start of a pan EU Tax setting and collection process.
Today I submit it is “Cross Border Trade†in all its various forms which will be the UK’s strongest card when negotiating its exit. Pro EU politicians and academics are fond of claiming the EU is the UK’s largest trading partner but this again is being economical with the truth because it is made up of 28 different member states from “minnows” like Cyprus and Malta to “whales†the likes of Germany & France. Individually the UK’s trade with the EU is such that NO ONE member State regardless of being a minnow or whale is equal to the UK’s trade with the USA whilst the UK exports more to the rest of the world than to the other 27 member states.
According to the Washington DC based Organisation for International Investment a handful of countries accounted for the cumulative lion’s share of the $1.93Billion in foreign direct investment in the United States (FDIUS) by year-end 2013 (the latest figures available) For the three years 2011-2013 the top five countries invested some $301.5Billion with the United Kingdom ranked as the single largest investor in the U.S. economy, at $105.9Bn. Japan was second at $78.2Bn followed by Canada at $62.8BN. The Netherlands at $48.9Bn and Ireland yes Ireland 5th at $16.4Bn although both Netherlands and Ireland actually withdrew $1.9bn and $1.8Bn net respectively in 2011. Neither France nor Germany individually or collectively are equal to the UK investment in any of these years. For info the total Chinese investment over these 3years was a mere 4.1Bn. (Four point One Billion!!)
Conversely it is important to look at the impact of the UK’s leaving the EU on other member states – it would be detrimental to all other member states trade. Will for instance Germany stop wanting a close trading relationship with the UK which is its 4th largest global market after China, the USA and its own Domestic market – a resounding NO . The same can be said of France ref the aerospace, defence, Wine & Cognac industries. So the UK does have major negotiating chips. Similarly other Global nations recognise the EU is far from a single united state – China is potentially the EU’s largest market but much to the annoyance of the Brussels federalists steadfastly refuses to allow the EU to collectively negotiate on behalf of all its member states on all major trade agreements hence President Hollande’ and Chancellor Merkel not infrequent visits to Beijing looking after their own State best interests.
Closer to our home here in Spain, it is hard to imagine Spanish corporations looking to exit their UK investments if indeed the UK were to leave the EU. Why ? – because of the net benefit their UK subsidiaries make towards their overall parents profits. Taking 3 leading Spanish owned UK corporations we have:-
Santander UK plc (formed out of the takeover of Abbey National, Bradford & Bingley, The Alliance & Leicester and other minor former building societies) this makes more profits for its parent Banc Santander Group than the latter does in the domestic Spanish market and this is not including the intra bank loans and interest bearing preference shares.
Would Iberdrola seek to sell its highly profitable Scottish Power utility with the majority of SP’s customers being in England and not Scotland as the name tends to imply or
Ferrovial Group which is the major shareholder in Heathrow Airport Holdings operating Heathrow, Aberdeen, Glasgow and Southampton Airports. It having been so dominant and profitable as to have previously been forced to sell its interests in Gatwick, Stansted and Edinburgh to try and break its monopoly on the major London and Scottish airports.
In totality the rest of the EU exports more to the UK than the UK does into the EU. So without a free trade agreement the EU potentially is worse off. According to HMRC trade info for the 6 months Dec13 to May14 the UK had a trade deficit with the EU of £27.384bn and even with Spain the deficit was £1.885bn
Thus I submit that far from being left high and dry the UK is in a much stronger position than many journalists and politicians seek to portray.
Again these individuals appear to assume the UK would be in a similar position to Norway or Switzerland i.e outside of the EU but – “cap in hand†– having to agree to EU legislation and regulations in order to trade with the EU whilst having no influence over them. Remember the EU exports more to the UK than receives from it.
Unlike either of these nations the UK is in terms of Gross Domestic Product (GDP) and/or Gross National Income (GNI) and EU membership contribution cash fees one of the top 4 net individual contributor member States of the EU alongside France, Italy and Germany. – a much stronger negotiating position.
For the EU to lose one of its major budgetary contributors would I suggest send shock waves through the otherwise contemptuous Brussels non-elected bureau politic with implications for their own budgets. Note: Pro EU academics and economists are fond of quoting contribution per head of population which relegates the UK to 6th but is irrelevant as it is the Absolute Total Net National Cash Contribution number which counts.i.e the UK puts in more than it gets out.
Sadly our own UK MP’s and civil service are not known for their negotiating skills partly because the majority have never been directly involved in working and/or managing companies regardless of size, let alone negotiating trade contracts – simply put they have never had “dirt under their finger nails†or as the Americans/Canadians would say – “no skin in the gameâ€
Whereas virtually every other member State interprets EU legislation to its own best advantage the UK politicians guided by career civil service mandarins ( think “yes Minister’) often without question adopt all Brussels /Strasbourg legislation thereby putting the UK’s own industries at a competitive disadvantage. In Germany if such legislation is at odds to its constitution it is rejected or delayed pending a decision from its top Courts as to whether it contravenes the said constitution.
German and French officials are past masters at ensuring – entirely within EU tender process exception rules – that major infrastructure projects are always awarded to their own industrial corporations. Yet the UK Government instead of enacting these exemption rules silently stood by as the London Cross Rail train rolling stock order was awarded to a Siemens division in 2013 rather than the Bombardier facility in Derby resulting in more than 1500 directly employed skilled workers being made redundant plus many more in the sub-component suppliers and therefore on unemployment benefit.
For the UK I suggest if the NEW Conservative Government were to offer a significant ongoing reduced level of Corporation tax on export profits earned outside of the EU for the business community to change its mind – it would also mean they brought the profits back to the UK rather than keeping these in offshore tax havens or investing in overseas infrastructure.
Thus if the proposed Cameron EU referendum forces a major re-think within Brussels and hopefully puts the non-elected federalists in Brussels back in their subservient places I for one am all for going in that direction.
Similarly the majority of individuals seeking a UK exit from the EU do not have a “little Britain†mentality but supported by actual Global export figures see far greater opportunities freed from the shackles of the bureau politic as per the former Chancellor of the Exchequer – Lord Lawson’s view. (The Times 7th May 2013)
TJ.
An excellent analysis Trefor. There is too much bullshit dished out by politiicians with career interests about this matter.
I am a Scot aged 60 who does not want the break up of the UK, this is the poorest group of politicians in my lifetime led by Cameron who despite his protestations is a committed European and will do his masters in Brussells bidding . He is hell bent on breaking up the UK so that it can be assimilated piece by piece into the EU which is nothing less than the old Soviet dictatorship in a velvet glove (for the moment).The EU dictatorship includes many people who grew up under the Soviet system. Cameron has already stated we are to celebrate the 800th year of magna carta (the basis of our legal system) by abolishing it and replacing it with a new constitution incorporating “human rights” As Britons, we have no need of human rights which are limited and can be taken away by any government, we have inalienable rights granted to us under magna carta, the bill of right and habeous corpus which incidently disappears in the new draft constitution, we are to be judged by a tribunal not a jury of our peers, this is an attempt to introduce Roman Law where you are deemed guilty unless you can prove your innocence. i regard Cameron and the Nats with contempt they are conning the British people but as I said at the beginning the opposition was so poor that the result was inevitable. Re UKIP they are merely controlled opposition for disaffected English nationalists. The majority in Scotland wishing to preserve the union now have no voice. The Nats number of seats bear no relation to their percentage of the vote 53%/95% which begs the question, how much gerrymandering has been in play. We are now a nation and island divided and that was the intention from the outset.
As an American aged 65 of Scotch/Irish descent I agree 100% with your comments. Well said!
As a meber of THe Canadian Association of British Pensioners who served in the RAF I expect to receive the Balance of my British Pension soon, especially since I served at RAF Cranwell where all the Royals learned fly. As the guy in the Sky says,” What you do to the least of my “Brothers you do unto ME” Thank God I became a Canadian many years ago, yet i believe Cameron and Harper (IF ELECTED) will get on well together, as they are both cut from the same FROZEN ragged cloth.
Your correspondent who describes UKIP as “merely controlled opposition for disaffected English nationalists” isn’t living in the real world. UKIP is taking votes from both sides of the political spectrum and providing the ever-increasing numbers who are fed up with unelected bureaucrats in Brussels ruling their lives with a means of expressing their frustrations. When the referendum comes the UK will vote decisively to leave the EU, if there is still an EU left to leave by then. The reason for the result of last Thursday’s election can be given in four words: Middle England closed ranks. And Middle England will do exactly the same when it comes to a referendum on leaving the EU. However, I agree with that same correspondent in likening the EU to a Stalinist dictatorship. It’s the nearest there has been to one since Joe Stalin himself.
“Regions” = “Nations” should govern themselves. Central government = Socialism = Communism = Dictatorial Tyranny is the theft of wealth and freedom granted by God and earned by their own labor, of “regional”peoples, whether they be Nation-states, or individual States, or Provinces, such as we have in the United States and Canada, etc.
Such “Centralization”, by definition, impoverishes and imperils those subject to it’s stifling myriad of rules and regulations. It is the chosen tool of tyrants and dictators such as those who created the European Union, the Soviet Union, etc., wherever one or a few wish to rule the many. It NEVER works and only creates misery and oppression. The European Union will break up. The economy/debt will force that. Signs of it are everywhere. It has gone on for too long already. Good riddance! Let the individual Nations go back to self-governance. This is what America’s Forefathers intended when they wrote the Constitution. The “Central” government in Washington D.C. was meant to have very limited, very specific, and very FEW powers, with the “regional” States and the people within them having ALL other power retained to themselves. How FAR away from that nearly perfect model we have been moved!
All I want is the money, I don`t want any trouble,oivay my life my life my boy. 1.7 trillion pounds to be precise. Pick a pocket or two boys, pick a pocket or two. Only a matter of time folks and you will still keep you heads in the sand with denial as you get marched off to the detention camps robbed blind of all asset, not even your labor of any value. Something wicked this way comes seen only by those who can wipe the dust from their eyes.
Philip, the reason i say UKIP is controlled opposition is because they have shown no interest in the UK Constitution debate nor in the introduction of the Bradbury Pound.(Debt free money) Farage’s purpose was to split the Tory vote thereby returning a leftist pro EU coalition without any promise of a referendum. Why do you think Farage offered to stand down having obtained almost 15% of the vote, his raison d’etre was past.I hope you are right as regards middle England, the EU have a rule that once you are in there is no leaving, that’s in the treaties our various traitors have signed.Our political leaders are nothing less than paid lackeys of the European elite.
This really is delusional. Farage’s purpose to split the Tory vote? How come UKIP are taking shedloads of votes from Labour in the North of England? It is only because of UKIP that Cameron is pressing ahead as much as he is on a referendum.
Hi, will someone tell the people of Scotland that their country cannot support itself and they only survive because UK gives them 11 biilion pounds per year and the North Sea oil is running out.The SNP are a bunch of looneys.
The Bible says the UK will leave the EU…..and the young lions come closer together.(UK,US, Canada, AUS) whilst Eu, Russia and the Vatican form a closer bond. Dan 4 and Rev
“God rules in the kingdoms of men and giveth it to whomsoever He will” Dan 4:17
Trefor, an excellent comment.
To add to it, remember that Obama publicly called Cameron “an intellectual lightweight”.
Hardly a sign that he likes him personally, other than to take advantage of him.
It is not that the Conservatives favour austerity, a word which has been greatly misused by other parties to paint a misleading picture. During the Labour government time low paid people were relatively highly taxed and benefits were liberally increased. This resulted in many people deciding they could live better on benefits than work and encouraged them to continue supporting the Labour party. This contributed to the large annual, but unsustainable, public spending deficit. The coalition government has both removed taxes from the low paid as well as reducing welfare entitlement so increasingly work pays.
The annual deficit is still unsustainable and the national debt dangerously large so much more needs to be done. The great increase in immigration has only made that more difficult by putting pressure on employment, housing, welfare, and health services. Many voters see that and have gone for the more fiscally responsible party to continue the reforms.
Concerning the SNP (Scottish National Party), their success is as much to do with failure of the Scottish Labour party as support for independence. Note that the ‘first past the post’ electoral system may have given them 56 of the 59 places but it was still with only some 50% of the total vote. It was not a mandate for independence, especially so soon after rejection last year.
Regarding Europe, it is seen by many as a corrupt, self-serving bureaucracy that squanders billions of Euros. Its accounts have not been signed off by auditors for decades and as we are the second highest contributor, after Germany, that is a concern, especially when we are paying from borrowed money, not a surplus. Typical of socialist empires it interferes too much with countries’ internal affairs and is committed to political integration, both of which are rejected by the British.
The pollsters got it wrong but myself and circle of friends got it right. There were 2 reasons for the Cons win. First the SNP. Why SNP MPs should have any say in English affairs is beyond us. This is causing deep resentment in England and the that story is only just beginning, wathch this space. In order to eliminate SNP influence, it was necessary to have a one party Govt not a coalition. So the Cons got the votes whilst the Lib/Dems were slaughtered. Same applied to UKIP and the Greens.
Secondly is the economy. A Labour Govt is not trusted to handle the economy correctly. Memories are long here. I remember 1977 where I earned £33,000 (a large amount then) but paid £37,000 in income tax under a Labour Govt whose Chancellor, Dennis Healey, said ” I will squeeze the rich until the pips squeak”. The rich left the country of course and just the working saps like me where caught to pay the bill. Demographics mean that the over 60’s voted en masse for the Cons and that trend will likely continue. I would prefer UKIP apart from them being a set of racist lunatics but I had to vote Cons to stop a coalition. Distrust of the EU runs very deep all over Europe, I have had a lot of dealing with Brussels beaurocrats and they genuinley believe in a Technocracy. They are chosed from the elite so they know what is best for us Proles in the provinces and that is ingrained throughout the Commission. The EU parliament is seen an irritant but is essentially impotent set up to give the illusion of choice and democracy but it is not fooling anyone. The Euro debacle that is coming down the line may and should see a major revamp of the EU. The German voters are not going to play bank forever, resentment is open and bubbling there. The Referendum on the EU in the UK will vote in favour of staying but with conditions. How all that is played out will be interesting to see.