A fairly bland format for a good debate, but the May vs Corbyn TV interviews certainly highlighted a few key themes and reinforced the growing view that this election is not such a done deal as first thought.

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Who won: May or Corbyn?

 

Both sides of course claimed victory, and there were certainly positives for the two leaders to be taken from the event. A score draw probably sums it up. May didn’t fall into any traps, while Corbyn managed to look like a potential PM. A rocky performance on Radio 4’s Women’s Hour on Tuesday took the shine off Corbyn’s bank holiday lustre. 

Polls showed continued momentum for Labour. A Survation poll for ITV put the Conservatives unchanged on 43%, while Labour inched up three points in a week to 37%.

GBPUSD

 

How did the pound react? Cable has been squeezed lower, retreating from the $1.30 handle in recent days as Labour started to poll better. Some weak GDP figures released last week didn’t help.

The interviews themselves didn’t produce much – GBPUSD was fairly steady on Monday and into Tuesday morning after a steep fall Friday. Corbyn may not be sterling negative as he’s stressed the importance of getting a deal. But does the market really think he’ll win? Labour would have turn the polls on their heads to enter Number 10. The recent poll surge needs to be seen in context. Mrs May remains odds-on to remain Prime Minister. A Corbyn surge might, however, leave Mrs May without the thumping majority she craves and that could leave uncertainty weighing on the pound.

JP Morgan strategists are now saying that a hung parliament could actually be sterling positive. Although usually a sign of uncertainty, if such a scenario leads to a centre-left coalition (Lab/Lib/SNP) that pursues a softer Brexit, the pound might rise.

They argue that the chances of a relief rally for the pound from a big Tory majority is small because this is still likely to result in a hard Brexit - Britain leaving the single market and customs union. By contrast, a hung parliament might see Britain prioritise single market access, which is likely to boost the pound.

FTSE 100

 

The FTSE is closely aligned with sterling but with Corbyn rising in the polls, do investors have to start pricing in the threat to certain sectors?

The Labour manifesto calls for nationalisation of a range of industries and that would undoubtedly hit FTSE blue chips in those sectors. Royal Mail, SSE, Centrica, Go Ahead are among the stocks that could be affected most if Mr Corbyn becomes prime minister.

JPMorgan is also turning more bullish on UK stocks. A note out today stresses their value in the current market.

"UK is a defensive market with high dividend yield. It should perform better in the backdrop of potential softening in activity indicators, lower inflation prints and continued range-bound bond yields. Market internals have turned defensive since early May, which is a support for the UK," they write.

"We think commodity sectors will perform better from here post Q1 weakness, helping UK – consistent with the big picture of a lower USD."

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