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Analysis
June 10, 2024
The next UK General Election will take place on 4th July 2024, and CFD traders will be watching the results closely. Since ADSS traders can easily take out both long and short positions, they are well-positioned to benefit from potential price moves. Some of the key markets expected to see additional volatility around the election include UK stocks, indices, and the GBP.
Neither the result, nor the market reaction are certain, but this article will outline five tradable assets that might offer opportunities to proactive traders.
The below assets are not trading recommendations, but include some of the stocks, forex pairs, and indices most likely to be impacted by election volatility. These stocks are directly linked to policy debates around housing, indices that track the overall British economy, and currency pairs that could see sharp adjustments. In all these markets, both long and short opportunities may arise as markets respond and correct to the election campaign. CFD traders need to be agile and use robust risk management practices as they look to share in the price action of the below assets.
The key indices used to measure the performance of the UK stock market are the FTSE100 and FTSE250, known colloquially as the ‘footsie’. These two indices include the 100 largest and 250 largest companies by market capitalisation, with the FTSE250 considered a better barometer for the overall performance of the UK economy. The FTSE100, which includes the largest UK-listed companies, is more popular with traders. However, the international revenue sources of many of these companies mean its performance is linked less strongly to the underlying British economy than the larger 250 index. Both indices may see volatility around the election.
Two companies that find themselves at the centre of policy debates about construction and housing are Persimmon and Taylor Wimpey. Both constituent stocks of the FTSE100 index, UK housebuilders have seen orders and completions fall for several years. With housing shortages considered a major problem in the British economy, whoever wins the election will be under pressure to increase the number of new homes built. This could potentially lead to increased trading interest in major housebuilding stocks, with volatility expected around the election as sentiment shifts and settles.
FirstGroup Plc is a UK transport operator that forms part of the FTSE250 index. As one of the largest private companies operating franchises on British railways, FirstGroup is at risk of nationalisation after a Labour victory. The terms of such a nationalisation are unclear, and it is not even certain plans will go ahead. Either way, though FirstGroup would continue to operate other business lines in public transport, losing the main focus of its business would cause significant disruption to the stock. This makes price swings in the run-up to and aftermath of the projected Labour victory very likely. CFD traders could go long or short to try and share in speculation around nationalisation or corrections to early price swings.
The EUR/GBP currency pair is an obvious target market for post-election volatility. Analysts at Barclays indicate that GBP may perform well in the months after the election, with traders mostly unconcerned by the fiscal and economic policies of either Labour or the Conservatives. Even so, on the day of the election sharp moves in either direction are possible. The EU elections may see additional volatility on the EUR side of this pair, creating both long and short opportunities for traders.
Cryptocurrencies probably aren’t an asset you immediately think of when it comes to the next UK General Election. But this time, things may be different.
Before dissolving Parliament and announcing the 4th July election, Prime Minister Rishi Sunak’s Conservative government was in the process of passing legislation providing a regulatory basis for cryptocurrencies in the UK. Now that this legislation is delayed, it isn’t clear whether the (predicted) Labour government will continue the same process. That means the legal standing of cryptocurrencies, especially controversial ‘stablecoins’, is uncertain for now. It is possible crypto traders could react to a Labour victory as a sign that regulation will be harsher, potentially resulting in volatility in key coins .
The long-term outlook for these markets – with the exception perhaps of housebuilding or railway stocks – is not changed by this election. But investors are interested in short-term market movements, and this election promises to see plenty of those. ADSS traders need to think strategically about which markets and assets may be impacted and build a trading strategy based on their views. As always, risk management and correct position sizing are key, as the election is sure to see an uptick in volatility.
How will the UK General Election impact the stock market?
No one can predict the impact of an election on the stock market. However, the next UK general election is expected to create volatility across the UK stock market, particularly affecting indices like the FTSE100 and FTSE250. Stocks related to housing and transportation may see significant price movements.
What are some key assets to watch during the UK elections?
Key assets to monitor during the UK elections include the FTSE100 and FTSE250 indices, housebuilding stocks, and the EUR/GBP currency pair. These assets are likely to experience increased volatility due to election-related developments and shifts in market sentiment.
Can the UK General Election impact the forex market?
Yes, the UK General Election can impact the forex market, especially the EUR/GBP currency pair. Analysts suggest that GBP may perform well post-election, though sharp moves in either direction are possible on election day.
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