Sterling hit a six month high against the dollar and a 2017 peak against the euro after British Prime Minister Theresa May's decision to call a snap election yesterday. The pound had gained 2.2% against the dollar at one point following Mrs May's announcement. It then gave up some of that but is still near its highest level against the greenback since October. Sterling also showed strongly against the euro. It has broken through the 84 pence barrier, gaining from 84.7 pence before the general election was called to 83.6 pence this morning - the highest the pound has been against the single currency since December.
Peter Brown, head of education at the Institute of Investing and Financial Trading (IIFT), said the markets were caught by surprise by Theresa May's announcement yesterday. Mr Brown said that sterling jumped on the basis that the markets feel Mrs May will go to the polls and get a bigger majority than she has now, which will allow her to implement a "harder Brexit", which ultimately means a better Brexit for the UK. He predicts an interesting election ahead as there is a lot of things up for grabs. One of the major things from an Irish perspective is whether Mrs May is looking for a bigger majority for a harder Brexit or will she look at the expected big majority, take on board different people's positions and be a bit more magnanimous and go for a softer Brexit, he added.
On the currency issue, Mr Brown said that a combination of a tricky French election and a surge in sterling could present an opportunity for some hedging. Mr Brown said there is nothing in the French election which looks good for the euro, so some euro weakness is expected all the way up to the month of May. There is going to be an opportunity for companies who are exporting to the UK do some hedging in around the 80 pence mark, or slightly below 80, he stated.
On the stock markets, Mr Brown said that the Donald Trump trade, which had boosted share prices on the hopes of tax cuts and US economy stimulus measures, has now fizzled out and the US President's planned his tax changes have been delayed until at least 2018. Markets are now flatlining, but Mr Brown noted that they remain "very solid". Due to the fact that interest rates remain at historical low levels, most investors will now sell their clients out of the stock markets, he added.
MORNING BRIEFS - Heineken reported unexpectedly strong beer sales in Asia and Europe. Analysts had expected the world's second largest brewer to report a decline in volumes partly due to the timing of the Easter bank holiday which fell in the first quarter last year boosting sales. But Heineken reported this morning that volumes rose by 0.6% on a like-for-like basis.
*** Volkswagen appears to be putting the multi-billion euro diesel emissions scandal in the rearview mirror. The German carmaker reported an operating profit of €4.4 billion over the first quarter of the year, up 28% on the same period a year ago. Those figures were ahead of market expectations and drove the company's shares over 4% higher. Volkswagen faces a bill for fines and compensation to affected motorists of more than €22 billion over the diesel duping scandal where it cheated on emissions tests and deceived both regulators and drivers about the true level of harmful gases produced by its engines. But the company has since overtaken Toyota as the world's best selling brand.
*** Fairfax Financial Holdings has sold down the bulk of the shareholding it acquired in Bank of Ireland in 2011 and has made €566m on that investment so far. The Canadian investment firm, founded by billionaire Prem Watsa, was part of a consortium that bought just under 35% of Bank of Ireland for €1.1 billion during the recession. That consortium included current US Commerce Secretary Wilbur Ross. Mr Ross sold his stake in Bank of Ireland three years ago pocketing a gain of €500m. Fairfax has adopted a different strategy, selling down its position steadily over the past two years. Its annual report said it has, to date, sold down 85% of its holdings in the bank.