A rundown of scenarios via Deutsche Bank on the 12 December election in the UK.
In the bullet points, the short term impact is first, followed by the medium-term.
Conservative majority between of greater than 30 seats:
- Short-term: Moderately bullish, sterling to rally 1-3% initially
- Medium-term: Sterling outlook contingent on government's approach to Brexit and transition period in H1 2020. A pivot on transition period extension would see further sterling gains (5-8%)
Conservative majority between of 0 (sic) - 30 seats:
- Mostly priced, sterling to rally 1-2%
Sterling outlook contingent on government's approach to Brexit and transition period in H1 2020 but greater uncertainty about ability of government to u-turn on transition period
Conservative minority government with DUP or Brexit Party support
- Bearish, sterling to fall 3-5% initially
Bearish on basis that chance of no deal Brexit by end of January Increases considerably
Conservative minority government with Liberal Democrat support
- Bullish, sterling to rally 2-4% initially
Potentially very bullish if price of minority government support is second referendum, with eurosceptic Conservative MPs marginalised
Labour minority government with SNP, Liberal Democrat, other parties
- Bearish sterling to fall 2-4% initially
Sterling to reverse initial sell-off and rally if second Brexit referendum delivered, fiscal policy becomes more expansionary and Labour party business policies are moderated
Labour minority government with SNP
- Bearish sterling to fall 2-4% initially
Lower confidence that Labour business policies constrained, and prospect of second Scottish independence referendum offset positives from Brexit and fiscal stimulus. Neutral
Labour majority
- Bearish sterling to fall 3-5% initially
Market will await execution of Labour Party policy platform on Brexit and business policies. Difficult to be structurally bearish given fiscal policy if BoE mandate unchanged
