Theresa May looks poised to carry Mrs Thatcher’s mantle forward.
On June 10th 1983 markets awoke to a triumphant Margaret Thatcher celebrating a landslide General Election victory. Thirty Four years later, almost to the day, Theresa May will most likely be returning to Downing Street as Prime Minister. The parallels between the 1983 and 2017 Election are striking not least the opportunistic calling of the election by Conservative leaders, one who saw, and now one who sees an opening to strengthen their grip on authority and power. As in 1983 it appears, as the polls and council results indicate, there will be another victory for the Conservatives. The Labour party, led by a hard left socialist, again fights a series of internal battles as they did in the early 80s and look to be having a tough time convincing the electorate.
The markets reacted in 1983 by delivering the second largest stock market return in an election year, of over 20%. Cable rallied strongly up to 1.5830 on the day of the election only to fall steadily for the rest of the year. Disregarding the market’s reaction 1983 was notable for one other reason. That was the year that reforms to the way that the City of London transacted its business were started. These eventually led to Big Bang, in 1987, and the subsequent establishment of London as a major financial centre. In 2017 it’s more likely that we will see a battle for the City to maintain its pre-eminence as the European financial hub, not only for trading but for clearing as well, as European centres try to lure business away.
Thatcher gambled that victory in the Falklands war would secure her election and she duly won her mandate, increasing the Conservative majority by 40 seats. The 4% swing to the Conservative party gave Mrs Thatcher the most decisive victory since that of Labour in 1945 and allowed her to rule and introduce radical reforms which changed the UK for ever. The recent Local Council elections (May 4th 2017) were indicating a 7% swing to the Tories which inferred about a 55 to 60 seat majority. It is often argued that local elections are no guide to a general election as people vote on local issues. However it is worth noting that in 1983 and 1987, the last Tory landslides, the Conservatives underperformed their eventual general election share of the vote. UKIP and the Liberals also look to have serious problems, which again appears to play into the Conservative’s hands.
When Mrs May called the election she was riding a 20% lead in the polls even allowing for the normal narrowing of polls when a leader calls an unexpected election the closing of the gap in the last two weeks must be alarming to the Conservatives. A badly thought through manifesto, which forced her into an unprecedented U turn on social care, has certainly damaged her position and her unease in front of the cameras has made voters question how ‘strong and stable’ she really is. In contrast Corbyn, having received some excellent media training, has appeared comfortable on television and comes across as a friendly Geography teacher.
Labours problems are two fold and despite a ‘free gifts for all‘ manifesto ultimately may make them unelectable in the eyes of the British public. They are dogged by questions about the past terrorist associations of Corbyn, McDonnell (the shadow Chancellor), and Abbott (the shadow Home secretary). The media are relentless in their attacks, rightly so, about Corbyn meeting with the gunmen of the IRA and Hamas. However much your spirit is full of forgiveness laying a wreath at the grave of one of the Palestinian gunmen involved in the Munich games attack (1972) is unforgivable. His second problem is his unswerving loyalty to his old lover Diane Abbott.
Television and social media are now, sadly, much more important in deciding voting intentions than newspapers. Unfortunately Diane Abbott appears incapable of appearing without making a fool of herself and more often than not her interviews have become comedy clips on Twitter and Facebook. However amusing it is for a senior politician to claim that her views changed on terrorism and hatred of the British way of life when she ceased having an Afro hair style, people realise that she could be Home Secretary in less than two weeks.
The polls, taken pre the Manchester terrorist attack had narrowed into as tight as Labour being only 6% behind the Conservatives .It is expected that the polls will widen out this week after an ill thought out speech by Corbyn blaming foreign policy for terrorism and a disastrous TV interview Abbott gave over the last weekend . By blaming foreign policy Corbyn has reignited the ‘terrorist apologist argument ‘and played into the hands of his detractors.
In 1983 the UK was the fifth largest oil producer in the world and prices were watched closely, the stronger the oil price the stronger Sterling became and the stock market followed suit. As the UK is no longer an important producer of oil the major focus of the markets will be on Brexit. With the leaked ‘divorce settlement’ figure of €100m we are undoubtedly heading for a hard Brexit and Mrs May’s stance will rightly harden. It is now nigh on impossible to see how a figure, agreeable to the UK, will be achieved and this will overhang the markets. It is also hard to imagine, at this time, a post-election bounce as the stock markets have sure fully discounted a victory and remain primarily a cable play as around 75% of the FTSE companies are dollar orientated.
A Labour party victory, whilst long odds, should not be totally discounted. Labour have aggressively sought the youth vote and offered a promise of free University education for all prospective undergraduates this year and this may have an impact on the polls. As the maxim goes you vote Socialist with your heart when you are young and Conservative with your head when you are older. Indeed the voting intentions show a marked change at 45. If the Socialists were to win Sterling could reasonably be expected to drop in the region of 10% from today’s value and the stock market , despite the earnings boost from lower cable could well drop 15%.With this scenario and following the shocks of Brexit and Trump perhaps the clever investor is looking at deeply out of the money puts ? The country has a clear choice whether to vote for a return to the 1970s and 1980s or to move forward.
The Britain of the early 1980s would hardly be recognisable to many today, a country riven by strikes and social unrest. Distinct differences abound, for example in 1983 higher oil prices were a positive whereas we now look for lower prices, the Euro was only a dream which became a nightmare, and the Conservatives campaigned for closer ties to Europe. What hasn’t changed is that strong leadership was needed by the country and the markets then, as it is now. Time will tell if Mrs May is fit to be seen as the heir to Mrs Thatcher .The markets loved Thatcher and her reforms and I have a sneaking suspicion that despite some bumpy times given the opportunity they will learn to love Theresa May.
Richard Matthews, who began in career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5
This column is the opinion of the author and does not necessarily reflect the opinion of Live Squawk.