UK dealing rooms get set for hours of uncertainty
Print Edition
AFTER a five-week campaign that has left Britain’s two main political parties neck and neck going into today’s general election, London’s dealing rooms are bracing for days rather than hours of uncertainty.
Banks’ financial trading desks traditionally increase staff on election nights to handle impromptu buying and selling of UK stocks, bonds or sterling as election results start streaming in late on polling day itself and into the early hours of Friday.
Most famously in 1992, financial markets were so euphoric about the unexpected return of the center-right Conservative Party with a large majority that the Bank of England sold 1.6 billion pounds (US$2.4 billion) of gilts through the night from about 2:30am onward.
But the chances of a decisive outcome today or even tomorrow are slim. Most polls put Prime Minister David Cameron’s Conservatives and Ed Miliband’s Labour Party a hair’s breadth apart, setting the world’s fifth-largest economy on track for its second consecutive hung parliament.
Financial dealers are thus left with a conundrum. With no clarity over which party will have the first stab at forming what will almost certainly be another coalition government, they still have to staff the desks on the off chance of an early result. But they are equally braced for days or weeks of bargaining.
“I’ll go home on Thursday during the day and get some sleep, then come in for the night and try to stay awake. It worked well for the Scottish referendum and hopefully it will here too,” said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
Big banks will have some sterling and gilts traders in London outside normal hours, though with many banks able to trade across the globe, the emphasis will be on an early start. “I’m sure it will be busy on Friday (so) we’re better positioned not having a load of tired people who’ve been sat up all night,” said a trader at a custodian bank.
With the potential for days, at least, of negotiating between parties before a new government is formed, some investors are biding their time.
“I wouldn’t want to give the impression we’re completely complacent, but we haven’t done a huge amount of currency trades or overlays,” said Martin Gilbert, CEO at Aberdeen Asset Management. “(If) uncertainty lasts a long time, that’s when markets start to get jittery.”
IG analyst Chris Beauchamp said: “We expect lots of business throughout the evening as the key results come in so we will be making some extra staffing provisions.”
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