It’s been a busy week already in the markets and we are only halfway through. Never fear, because volatility often presents opportunity.
One of the most interesting events thus far has been the statement from Nigel Farage (leader of the Brexit Party) that his party are not going to contest the 317 seats the Conservative Party won in the last election. However, they are going to contest the seats of the Labour Party, who he claims have broken their manifesto pledge of delivering on Brexit.
Farage is quite the political maverick, but as we have seen on numerous occasions in the past, he needs to be taken seriously. Indeed, his comments saw an immediate spike, not on the FTSE 100, but on the value of the British pound. It soared higher intraday against most major peers.
Looking forward, I think this could be a key event in the election campaign, and by extension, in the performance of the FTSE 100. As Lloyds Banking Group (LSE: LLOY) is one of the most traded stocks in the index, how could this key marker in the election thus far make an impact on the share price?
Boosting a Conservative victory
Let’s say that the Conservatives do win all of the seats they took before, and manage to win a few others to get to the magical 326 seats (a majority). In this case, Farage would have helped the Conservatives to win, having not opposed them in any of areas. This result would likely give a boost to the FTSE 100, and Lloyds shares as well.
This is because the Conservative party are seen as pro big business, and so would allow firms like Lloyds to trade freely to a certain degree.
Added to this is the increased likelihood of “getting Brexit done” as current PM Johnson loves to say. This too would be a positive for the bank, as uncertainty over domestic demand and consumer sentiment has long weighed on the share price.
Evidence of this can be seen in the strong share price rally when it appeared the UK could meet the 31 October deadline with a deal.
Reducing the chance of a Labour victory
By going after all the seats which Labour currently have, Farage could win some of these. Without being political, those who want Brexit may feel more inclined to vote for the Brexit Party than for Labour. Now by reducing the chance of Labour getting a majority in Parliament, this result would likely give Lloyds share price a boost.
It is unfair to call the Labour party bad for business, however some of their plans regarding nationalising certain industries and imposing higher rates of tax would hinder the progress for Lloyds. For example, a mooted financial services tax would hit Lloyds hard, and could really see investors become nervous over future earnings.
Overall, the Lloyds share price could have a lot to gain from the move from Nigel Farage and the Brexit Party over the next 6–12 months.
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Jonathan Smith owns shares in Lloyds. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019