With the UK election just days away, market chatter is starting to intensify around the issue of a hung parliament, and how the markets might move in response to the outcome of the May 6th election.

With Cameron’s Conservatives almost universally showing a marginal lead in opinion polls over Labour and the Lib Dems, the data even at this late stage points to a hung parliament being the most likely outcome when the UK goes to the polls at the end of the week.

At least, we can expect a degree of political wrangling and deal-making behind the scenes, which will do nothing to clarify the direction the UK might take politically in the near future. While markets could respond in any number of ways, and with so many variables that could play in to that decision, tapping in to the general sentiment come May 7th could prove a profitable trading move.

The markets are unlikely to respond positively to uncertainty, and by all accounts it looks as if we still won’t know the answer this Friday. But should the Conservatives or Labour win, how will the markets react to manifesto pledges of cost-cutting, tax rises and the seemingly live possibility of a so-called ‘double-dip’ recession? Which, if any, of the two contenders will the markets favour?

While only time will tell, second-guessing the markets and their reactions to the election outcome could be a potentially profitable, if not highly unpredictable, strategy for trading this week.

About the author

Lunch is for Wimps used to trade currencies and equity indices – and even occasionally traded German government bonds when he was trying to cure insomnia. Watching Wall Street one night, he heard Gordon Gekko deliver the classic line: “if you want a friend, get a dog”. Unfortunately, a large build-up of ear wax led to him mishearing this piece of wisdom, and he ended up starting this damn blog when he should have been at the pet shop instead.

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