May vs. Corbyn, do the markets care about a Corbyn victory?

The pound had rallied into the May vs. Corbyn interviews on Monday, however, the moment Labour leader Jeremy Corbyn started talking on Monday night the pound basically ground to a halt, with GBP/USD moving a grand total of approx. 8 points throughout the evening. This interview format is far too formal to move the markets, a good head-to-head debate is what is needed to stir up some volatility, and we’re not going to get that during this election campaign.

Why the FX market could warm to Corbyn

The one thing that we did learn from these interviews is that the market didn’t panic on the back of an extremely polished performance from Jeremy Corbyn that could materially boost his approval ratings. He was relaxed and came across well; even questions about his past links to terror organisations didn’t seem to derail his performance. The fact that the pound didn’t fall on the back of this could suggest that the markets aren’t that frightened of a win for Labour in 10 days’ time. Perhaps they would see it as a mini positive, and an antidote to Trump and co. on the other side of the Atlantic?

Why the FTSE 100 could be a victim of Corbyn’s success

If the polls keep narrowing in the way that they have been in the past week and a half then the markets may have to readjust to the prospect of a win for Labour. However, what Corbyn was saying on Brexit, and his more sanguine stance towards negotiations with our European neighbours, might not be that pound negative after all. Since the first sign that Labour was catching up with the Tories last week, GBP/USD has only dropped approx. 200 pips, although this is a decent move to the downside, it does not suggest that the market is panicked over Corbyn. However, due to Labour’s proposed tax rises, the FTSE 100 may not fare as well, and if it looks like Corbyn and Labour really are in contention to make it to Number 10 then we would expect to see some market jitters, although this could be concentrated mostly in the UK stock market, and not the sterling market.

Why the polls might turn back in favour of Theresa May

It is also worth digging a bit deeper into the latest voting intention polls. Although the Tory lead over Labour has narrowed sharply, the latest poll from Wednesday and Thursday last week, after the Manchester attack, saw the Tory favourability rating rise, and its unfavourability rating fall, the opposite was true for Labour. Thus, last week’s polls shock may have been a blip, and if the Conservatives can get back some momentum then this election looks like it is theirs’ for the taking. However, the strong performance from Corbyn on Monday night may boost his overall ratings and may also boost Labour. Thus, this election is still up for grabs and this week’s polls will be much more important for sterling and the FTSE 100.

Has election fatigue infiltrated the financial markets?

Overall, by the time the debate was over GBP/USD was virtually unchanged. I would guess that the polls will say that Corbyn did a better job than May, watch Tuesday’s price action to gauge whether or not the market is bothered by a Labour government. However, the general malaise in the market this evening could be a sign of election fatigue, after all, the UK has had three national votes in the last two years.

British Airways chaos could weigh on IAG

Outside of the UK election, It’s also worth watching IAG, the owner of British Airways, on Tuesday morning, as it could come under some heavy selling pressure after British Airways’ PR disaster after its computer systems crashed causing all BA flights to be grounded on Saturday. On the FX front, the dollar is also higher after Friday’s GDP upgrade for the US, at the expense of the euro, which has backed away from 1.1268 highs vs. the USD.