The Financial Markets And The Worst Recession Since The 1930s?

So apparently the UK has just experienced the worst recession since the 1930s

. Although anybody over the age of thirty-five might be forgiven for saying pull the other one.

The chaos and misery of the 70s and 80s recessions and hyperinflation were far worse than we have just seen / are currently seeing. Whilst unemployment rates have risen they are still pretty low by European standards, or at least by historic recession levels for the UK.

On top of this, debt has never been so affordable and those in employment, still over 90% of those wanting to work, may be thinking that things are ok after all.

Unfortunately, of course, the nasty tasting medicine still has to be taken in the UK, whereas smaller countries like Ireland, Portugal and Greece have been hurried into problematic solutions.

So it is interesting that during all the pomp surrounding the forthcoming UK election that our Lords and Masters continue to dance around the major questions. There must be a sense of fear in all the electioneering that the winner will have to be the one who makes all the nasty decisions.

This will almost certainly make the victor this time round the loser at the next election.

According to Angus Campbell of CapitalSpreads, The financial markets can be fickle but it is no surprise that they have their favourites. Sterling is looking reasonably solid at the moment and whenever we see a surge in support for the Conservative Party it seems to be giving buyers of the Pound some confidence. However, it must be said that the word some is the optimum one.

Recent election polls have suggested a small but comfortable lead for the Conservatives. One might have expected more of a positive reaction in the financial markets. There is always the worry that if a market will not go in the expected direction, it doesnt stand still, it will probably go in the opposite direction.

So Sterling seems partial to a Conservative victory but it looks like it may not be an outright disaster if the Tories do not win. This theory is partially backed up by the FTSE 100. The UKs leading share index is at 22-month highs. This would suggest that traders are not too nervous over which party wins.

I say partial because it should be remembered that circa 70% of FTSE 100 revenue is made overseas. Whilst there may be the odd windfall tax, UK government policy is less likely the affect that revenue.

So if the Pound deteriorates this would suggest that profit margins on foreign earnings get a quite a boost and the value of UK shares in both Euro and Dollar terms start to look ever more attractive.

Perhaps the traders have already hedged their bets.

by: Robert Thomas

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