Pound Dives After UK Election Upset

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Britain’s pound took a battering dive on Friday, staying at its two-month lows, after Prime Minister Theresa May’s Conservative Party lost its parliamentary majority in elections, plunging the country into potential political chaos days before the start of Brexit negotiations.

Sterling fell 1.6% to $1.2748 after sliding as much as 2.5% to $1.2636 in early European trade , its weakest level since April 18.

With no clear winner emerging from Thursday’s election, Prime Minister Theresa May was fighting to hold on to her job on Friday as she faced calls to quit after her election gamble to win a stronger mandate she had sought to conduct exit talks with the rest of the European Union failed, leaving no single party with a clear claim to power just 10 days before the start of negotiations on Britain’s divorce from the European Union.

Lee, Hardman, a currency strategist in London, said the market wants more clearness now as far as who will be the next Prime Minister, what kind of form will the government take and eventually how all that feeds through into upcoming Brexit negotiations are concerned.

“In the near term the increased political uncertainty and the risk of more disorderly Brexit negotiations should enforce pound weakness.”

The surprise of a result that raised questions about how Britain will go on with its plan to leave the EU, and whether any party can form a stable government, sent the pound to eight-week lows against the dollar and its lowest levels in seven months versus the euro.

After falling sharply on an exit poll released when polls closed at 21:00 GMT, which showed Britain was set for a hung parliament, the pound had steadied a little in Asian trading. However, it fell sharply again as London traders arrived at their desks, as it became clear that no party had won a majority.

Another currency strategist in London, Viraj Patel, said that the pound’s nightmare scenario would always be the failure to have a safe political stability and the result of a hung parliament.

“Hopes that political uncertainty would decrease substantially under a more stable Conservative government…(have) been all but dashed,” said Patel.

“With the two-year Article 50 clock ticking, the passage of time is sterling-negative,” he added, referring to the formal Article 50 process by which Britain is set to leave the EU. “A working government is needed as soon as possible to avoid a further drop in the pound.”

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Banks Major Relocation Plan Due to Brexit

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Brexit is still two years away but the mass departure of finance-related jobs has been set into motion as largest global banks in London are planning to move jobs to the continent already in the next two years.

According to separate reports by Oliver Wyman and Ernst & Young, possible estimates for finance job losses due to Brexit are on wide scale from 4,000 to 232,000.

Banks are moving with caution, performing two-stage contingency plans in order to prevent losing worried London-based personnel while they work out how many jobs will have to move in the end.

This would imply that the figures could likely go up further depending on what agreement will eventually be made between the European Union (EU) and Britain.

The first part involves small numbers to make sure the necessary licenses, technology and infrastructure are in position, while the next will rely on the longer term plan of a bank’s European business.

The Bank of England has given finance corporations until July 14 to get started on their plans.

JPMorgan stated it plans last week to move between 500 to 1,000 jobs to three European cities specifically Dublin, Frankfurt and Luxembourg in the next two years which was still notably smaller than the 4,000 figure the bank’s chief executive officer Jamie Daimon first estimated before the French presidential election.

Standard Chartered which regularly conducts business in Asia followed suit with plans to strengthen its subsidiary in Frankfurt in preparation for Brexit.

The bank’s chairman Jose Vinals said that the Brexit would not oblige the Asia-orientated bank to change its UK quarters explaining that adapting its Frankfurt division into a subsidiary, which would be questioned to stricter directive, would only involve a small number of London-based staffs. It currently has about 90 employees in Frankfurt.

Frankfurt and Dublin are on the rise as the major victors from the relocation plans since six of the 13 banks chose to open a new office or moving the greater part of their business to Frankfurt while three of the banks will look to expand in Dublin.

The Deutsche Bank said on April 26 that up to 4,000 United Kindom-based jobs could be moved to Frankfurt and other locations in the EU as a result of Brexit. This was the biggest move of any bank.

Chief executive of HSBC Stuart Gulliver has said this week that the bank’s earlier estimate of about 1,000 employees would be relocated to Paris following Britain’s decision to withdraw from the EU.

Plans of large banks including Credit Suisse and Bank of America and several smaller banks are still unknown.

Thirteen of the biggest banks worldwide including Goldman Sachs, UBS and Citigroup have provided a plan on the subject of how they would build up their operations in Europe to secure market entry to the EU’s sole market once Britain separates from the union.

Discussions with financial officials in Europe have been ongoing for more than a few months nevertheless banks are completing plans to relocate staff and operations.

Even if the transfers would correspond to about 2 percent of London’s finance-related jobs, Britains tax revenues could be affected if it loses wealthy taxpayers working in financial services.

According to a think tank on budget matters, what is left of the population will have to pay more if top earners move.

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European Stocks Fall Over Political Concerns

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European stocks edged lower on Wednesday due to growing concerns over the Brexit negotiations and as investors wait for the second round of the French presidential election on May 7.

Euro Stoxx 50 (STOXX50E) was down from 0.02 percent during the morning tradeto 0.08 percent to €3,575.

France’s CAC 40 (FCHI) slipped 0.2 percent to €5,289 while Germany’s DAX index (GDAXI) remained 0.1 percent down to €12,485.

Stock markets were on edge following France and Germany’s demand to raise Britain’s Brexit bill gross payment of up to €100 billion ($109 billion).

Investors are also staying cautious as French political rivals Emmanuel Macron and Marine Le Pen will battle each other in one last televised debate on Wednesday evening before Sunday’s voting.

Meanwhile, the US Federal Reserve (Fed) wraps up its two-day meeting on Wednesday and is likely to hold interest rates steady. The Fed was expected to release its monthly monetary policy decision later in the day.

The central bank was also set to hold interest rates with investors looking for any clues on the speed of future rate hikes.

Financial stocks were mostly higher on Wednesday with BNP Paribas SA (BNPP) gaining 0.3 percent to €66.00 and SocieteGenerale (SOGN) climbing 1.1 percent to €51.07. Germany’s Commerzbank AG O.N (CBKG) also rose 0.1 percent to €9.085.

Peripheral lenders also performed well, including Italy’s IntesaSanpaolo (ISP) getting 0.1 percent boost to €2.684 and UniCreditSpA (CRDI) increasing by 1.5 percent to €15.3500. Spain’s Banco Bilbao VizcayaArgentaria (BBVA) was up as well by 0.7 percent to €7.497.

German-based healthcare firm Frensenius SE & Co (FREG) added 2.9 percent to €77.720 to its shares after the company reported a 28 percent boost in net income for the first quarter and rise in sales of 19 percent.

Hugo Boss’ shares also fell 4 percent to €66.440 after reporting another loss in online sales by 27 percent in the first three months of the year even though total sales were up 1 percent to €651 million and net profit rising 25 percent to €48 million ($52 million).

Despite growing results in the financial sectors, London’s stocks were on the downside. FTSE 100lost 0.3 percent to £7,225 subsequent to supermarket J Sainsbury’s drop in shares of about 2.22 percent.The food retailer’s current stock price slipped 4 percent to £268.10 on Wednesday.

Mining stocks in the country were low as well. Glencore PLC (GLEN) dropped 3 percent to £288.45, Antofagasta (ANTO) also lost 3 percent to £777.50 and BHP Billiton (BLT) edged down by 3 percent as well to £1,131.50.

Financial sector was also performing poorly on Wednesday with Lloyds Banking Group (LLOY) falling 0.3 percent to £68.98 and HSBC Holdings (HSBA) receiving a 0.1 percent decline to £639. Barclays (BARC) got a 0.3 percent cut to £209.10 while the Royal Bank of Scotland (RBS) fell 0.04 percent to £264.50.

InterContinental Hotels Group (IHG) gained 1.1 percent to £4,161.

Shares of UK-based Company Dialog Semiconductor which provides power management systems for Apple Inc fell 3 percent to €41.8600 due to weak sales in its flagship iPhone missing average estimates in the second quarter.

Meanwhile, the stocks in the US were also lower on Wednesday with Dow Jones 30 losing 0.08 percent to $20,849, S&P 500 was down 0.1 percent to $2,382 and Nasdaq 100 futures dropped 0.2 percent to $5,623.

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BoE to leave ‘fiscal stimulus’ to Theresa May

One of the after effects of the Brexit vote is the slowly emerging consequences which have been long predicted by its non-supporters.

To absorb a huge economic impact and to tackle recession, the Bank of England launched its largest stimulus package following the crisis.

Some of which is an interest-rate cut for as low as a record breaking 0.25 per cent, a new £70 billion (HK$710 billion) bond-buying scheme and a £100 billion fund to further encourage banks to pass offer cheap rates to borrowers. An offer which Bank of England governor Mark Carney calls an “exceptional package”.

These are some of the acts that the Bank of England has been persuaded to decisively do weeks after the British Referendum vote. Despite all these efforts, Carney says that the bank expects the biggest growth plunge in twenty years along with the loss of almost 250,000 jobs.

Former Prime Minister David Cameron resigned after the declaration of the British Exit stating that it wouldn’t be right for him to further lead the country through the coming months. Current Prime Minister Theresa May has already set the country’s positions with leaders from countries such as France, Germany and other European nations.

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The current status on the effect of Brexit to the world economy has not been massive so far but the status will depend on the government’s next action after the Bank of England package.

Bond purchases to follow after lower interest rates

After the decision to drop down interest rates for the very first time since 2009, the Bank of England also made the decision to absorb an even bigger Brexit effect by announcing that it would buy £60 billion worth of government debt.

Aside from this, it was also announced that the Bank of England would also launch two new schemes to make sure that banks would keep lending despite the cut in interest rates. One of which is to purchase £10 billion worth of high-grade corporate bonds and another one which could possibly amount to cost up to £100 billion.

Other banks expected to follow rates

After the historic 0.25% drop launched to avoid a recession, Carney also stated that he expected other banks to follow the rate cut and even offered a £100 billion fund in aid. It is also said that customers and borrowers with savings and mortgages following the Bank base rate will be given an automatic cut.

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