UK: Heightened level of risk sensitivity – RBC CM

George Davis, Research Analyst at RBC Capital Markets, suggests that there has been a material narrowing in opinion poll share between the Conservatives and Labour over the last three weeks in the run-up to today’s UK election and this has resulted in a heightened level of risk sensitivity, as a Tory win had been largely priced in across asset classes. 

Key Quotes

“A Conservative win still remains the base-case scenario based on the polls, with a hung Parliament or Labour victory serving as tail risk scenarios that would have a more significant market impact.”

“We note that 1.2757 and 0.8788 serve as pivots for election tail risk in GBP/USD and EUR/GBP respectively.”

“Fixed income markets are heading into the election with a bullish bias for Gilts on an outright, curve and cross market basis.”

“Using gold as a risk proxy, we highlight the importance of the 1296 level as a pivot for election tail risk.”