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5 "Tells" that the Stock Markets Are About to Reverse

UK Stocks, Bonds, Even Housing Market Celebrate Conservative Election Win

ElectionOracle / UK General Election May 08, 2015 - 09:27 PM GMT

By: Nadeem_Walayat

ElectionOracle

Financial markets relief at having avoided a Labour-SNP catastrophe triggered sharp rallies across UK markets with the FTSE closing up 2.3% at 7,046 and closing in on its all time high of a month ago of 7,122. UK bonds also surged with the 10 year bond yield falling sharply to 1.8% from just above 2%. And even average house prices added 1.6% following publication of Halifax data for April with sterling strength continuing from publication of last nights exit poll.


However, the truth is that the markets have been discounting a Conservative win ALL year as my pre-election article made clear which was contrary to the opinion pollsters who got it very badly wrong, so wrong that it made all the difference of which party would form the next government.

Opinion pollster's seats forecasts averaged to:

  • Conservatives : 276
  • Labour : 271
  • SNP : 53
  • Lib Dems : 25
  • DUP 8

Which were forecasting an extreme hung parliament -

Conservatives + Lib Dems = 301 - FAIL

Add DUP 8 seats = 309 - FAIL

Labour + Lib-Dems = 296 - FAIL

Labour + Lib-Dems + Plaid Cymru + Greens = 303 - FAIL

Thus according to the opinion polls the only workable majority would have been one of a minority Labour government supported by the SNP (53) to total 323.

Whilst as my article of 6th May made clear that the financial markets, including housing market were discounting an outright Conservative election win.

06 May 2015 - Stocks, Bonds, Sterling and House Prices Forecast Conservative UK Election Win

One would imagine that such a potentially disastrous outcome of a weak Labour government dancing to the Scottish Nationalists tune would have the markets in state of panic! Instead what has been missing from the whole mainstream media election noise has been any signs of negative market response, because there hasn't been any market response, not a whimper out of the financial markets for the whole of this year that political pundits and politicians could have pointed to as a sign of this, that or the other, as there clearly would have been were Britain actually heading towards the chaos of an extreme hung parliament of a weak Milliband Labour minority government dancing to the highly destructive SNP insurgents tune.

The FTSE's bullish stock market trend for the whole of this year illustrates that investors expect a continuation of Britain's economic fundamentals rather than the uncertainty of a nationalist driven outcome.

Sterling against the dollar is smack bang in the middle of its tight range of the past 6 months of less than 9% volatility.

Whilst sterling against the Euro following a strong bull run into Mid March has been calmly marking time. Though of course where the euro is concerned the main focus there is when Greece explodes out of the Euro-zone which is probably imminent i.e. before the end of May.

Its only in the bond markets we see some signs of worry. Though even here is it not exactly earth shattering, there is no mega-spike of several percentage points instead the 10 year yield is back where it was about 5 months ago.

"Its the Economy Stupid" - And of course stable markets are just reflective of a relatively strong UK economy which 'should' favour the party of Government.

So Britain's calm financial markets and relatively strong economy are painting a picture for the continuation of the Conservative government be it in Coalition with the Lib-Dems or not.

UK House Prices

House prices momentum has picked up from February's +6.6%, to +7.7% for March, though has missed the headline grabbing new all time high in average UK house prices just prior to election day, probably due to ongoing weakness in house prices in the South East.

Therefore the Conservatives mini election boom appears to have failed to spike to a +10% inflation rate for election day, where my expectations were that it could have ranged to as high as +12% for an outright 30 seats majority inducing result as my long-standing analysis of seats vs house prices trend trajectory forecast.

30 Dec 2013 - UK House Prices Forecast 2014 to 2018, Inflation, Trend Trajectory and General Election 2015

UK General Election Forecast 2015

In terms of the 'fixed' May 2015 general election, the implications of 10% per annum house price inflation for another 18 months, that builds on the housing bull market of the previous 12 months and on the embryonic bull market of 2012 are that probability strongly favours an outright Conservative election victory.

The following graph attempts to fine tune the outcome of the next general election by utilising the more conservative current house prices momentum of 8.5% which has many implications for strategies that political parties may be entertaining to skew the election results in their favour.

In conclusion a May 2015 general election at an average house price inflation rate of 8.5% would result in a Conservative overall majority of at least 30 seats. Therefore this is my minimum expectation as I expect UK house prices to start to average 10% per annum from early 2014 with my actual forecast converging towards average UK house prices breaking to a new all time high just prior to the May 2015 general election which would be a significant boost for housing market sentiment and thus the Conservative's election prospects.

The updated election seats trend graph suggests that the Conservatives are on target towards achieving a single digits outright majority which is completely contrary to every opinion poll published this year. Which if it materialises then I am sure for Election 2020 everyone will be staring at the house prices indices rather than the opinion polls. Though as is usually the case that when the consensus becomes focused on an particular indicator then it usually stops working.

Ensure you are subscribed to my always free newsletter for my in-depth analysis and detailed trend forecasts.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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