UK: Polls getting tighter – Deutsche Bank
Jack Di-Lizia, Strategist at Deutsche Bank, suggests that with less than week remaining until the UK general election, polling has continued to tighten, with the average polling lead for the Conservatives over Labour now down to just under 9%, relative to highs of just over 20% towards the end of April.
Key Quotes
“Our analysis of previous polling errors highlights that the polls have typically overestimated support for Labour into previous elections, while current polling would still just about be consistent with the Conservatives increasing their current slim majority to a level consistent with PM May overcoming her current party constraints.”
“However, the narrowing in the polls has increased the probability of a smaller Conservative vote share, raising the likelihood of alternative election outcomes.”
“Tighter polls yet vol remains cheap
The recent tightening in the polls has increased the probability of outcomes aside from an increased Conservative majority. As the scenario analysis above highlights, the anticipated market impact varies widely by scenario, from a rally in the case of a reduced Conservative majority to a sharp sell-off in the event of a Labour majority. The relative cheapness of GBP rates vol is therefore surprising, with 3m10Y vol significantly lower than the levels seen in advance of the Scottish Referendum, 2015 General Election or last year's EU Referendum. Moreover, this can also be seen in the ratio of GBP vol to both USD and EUR, with GBP vol looking particularly cheap relative to the US at current levels. This would point to value in owning GBP vol in advance of the upcoming election.”
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