Tories’ Victory Stuns Polls, But Jobs Data To Determine Dollar’s Fate

The polls proved wide of the mark. While we had detected a break toward the Tories over the past week, the results were stunning. The Tories appear to have won half the 650 seats. Most of the contested seats swung to the Conservatives. They picked up seats from the Lib-Dems and Labour.  

UKIP garnered about 13% of the vote (~3.5 mln), but those votes were widely spread out, and the anti-EU party appears to have won but one seat in the House of Commons. The SNP received 5% of the national vote (~1.5 mln) but swept Scotland itself t  secure about 56 seats in the parliament. SNP leaders have indicated no intention to push for another independent referendum. UK Prime Minister Cameron’s electoral success means that the UK will have a referendum on its EU membership in two years.   

Sterling was bid up on the exit polls that pointed to the Tories’ victory. The initial response was worth two cents to $1.5450 and then in late-Asia made another push toward almost $1.5525. The next technical target is in the $1.5550-80 area. With the political risk subsiding and a minority government avoided, UK assets have powered ahead. Amid a European stock and bond market rally, the UK is leading with 10-year gilt yields off six bp to 1.86% and the FTSE up about 1.5% near midday in London.  

There have been four other developments to note before turning to the US (and Canadian) employment data.  The Reserve Bank of Australia’s monetary policy statement offered a somber economic assessment, with below trend growth persisting longer. Growth and inflation forecasts were shaved. The Australian dollar initial weakened but recouped the losses to return to little changed levels just above $0.7900 ahead of the North American open.  

The Australian dollar shrugged off the second notable development: China’s trade figures. China reported an unexpected drop in both exports and imports. The net result was a larger trade surplus of $34.1 bln in April up from $3.1 bln in March. The consensus had expected a $39 bln surplus. Exports fell 6.4%. The consensus called for a 1.6% increase. Imports slumped 16.2%, which was about third larger than expected. This suggests Q2 growth is off to a slow start. Many observers will look for more stimulus as a result.