Christopher Granville comments on UK election results:
- Minority Conservative government potentially bullish for economy
- Short-term Brexit process risks stem from political weakness
- Growth – now right on potential – to slow to 1%, recession risk is low
With the prospect of a June referendum hanging over the markets, interest in Brexit trades has heightened. There is currency-market evidence showing that speculative investors have been positioning for a possible Brexit principally in the FX options markets. Indeed, a chunk of decline in sterling during late December and January may be related to the build-up of option-market positioning, since spot market positioning indicators do not show evidence of extreme short positioning so far (see chart above). Our central view is that sterling will remain the main shock-absorbi...