By Patrick Foot, financial markets writer at IG.
Traders are used to looking towards industry bodies, companies and central banks for market-moving announcements. This week, that meant figures on CPI and unemployment in the UK, and a speech from Janet Yellen in the US.
David Cameron has stolen the headlines this week, however, announcing a slew of retirements and his cabinet reshuffle. Much of the reshuffle can be seen as an attempt to improve public image of the party ahead of the impending election: the elevation of more female politicians at the expense of ‘pale, male and stale’ incumbents has been the lead story.
There have been plenty of significant changes in cabinet that may be important for both businesses and investors, though. The nature of reshuffle announcements – with news slowly released over a fairly long period of time – and the markets means that immediate reaction is hard to gauge. But in the longer term, these shifts might be significant for the future of the UK and its industries.
The biggest figure to leave their post was William Hague; the ex-leader of the Conservatives left his position as foreign secretary to become leader of the Commons ahead of an exit from Parliament at the next election. His replacement is Philip Hammond, who leaves his position as defence secretary.
Philip Hammond’s appointment is most notable because of his scepticism towards Europe. In May last year, he declared that he was prepared to vote to leave the Union if the UK did not secure greater individual powers. That is a stance he shares with Michael Gove, who has been moved from education secretary to Chief Whip in another key move this week. Finally, two of the party’s more prominent pro-European members, Dominic Grieve and Kenneth Clarke, have left. Many commentators have noted a clear shift away from Europe in this reshuffle.
So what does that mean for investors? Perhaps the most effected asset will be forex, as both the euro and the pound have dropped when major moves towards separatism have occurred in the past. During the week of UKIP’s European election victory, the pound dropped 26 pips per day against the dollar, six times faster than during the rest of the month. It also dropped against a fairly weak and underperforming euro.
The pound drops against the dollar as British voters instigate a move away from Europe – From IG’s forex trading platform: http://www.ig.com/uk/forex-trading
Businesses with a key stake in Europe may also be affected in the long term, though of course it is early days yet and we cannot speculate on what position this new cabinet will take.
Stepping into Philip Hammond’s shoes as defence secretary is Michael Fallon, the former minister of state for energy and minister for business and enterprise. A Conservative MP for over 30 years, his announcement is mainly notable as it bucks the trend of female promotions at the moment. But it will be watched closely by those who have a stake in defence companies like BAE Systems, Cobham and Senior.
Finally, there is a change in government for the energy sector, as Owen Paterson gets the sack as environment secretary to be replaced by Liz Truss. Owen Paterson was known for his conservative views on the environment, angering many green groups by taking a sceptic position on climate change. Liz Truss’s views on the energy sector are not yet fully known, though she has expressed support for renewables in the past.
Greener companies on the markets may be in for an easier time, whilst the cabinet has lost a notable supporter of shale gas. Whether that has an impact on companies like Alkane Energy and Europa Oil, as well as commodities, remains to be seen. Edward Davey has kept his post as Secretary of State for Energy.
Of course, knee jerk reaction in the markets is both unlikely and unwise, but the movements of David Cameron towards the next General Election will be felt by traders across several sectors. Paying close attention and being fully aware of where the Conservative Party is headed can only help investors in the coming months.
Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.
This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.