London stocks plunged yesterday, dragging Europe lower after Britain called a snap general election, fuelling political uncertainty ahead of Brexit but also a tight presidential race in France.
Indices were hit also by falling metals prices, traders said, as investors returned to their desks after a four-day Easter break.
At the close, the London FTSE 100 index of leading shares had slumped 2.5% at 7,147.50 points as miners and banks suffered while the Paris CAC 40 shed 1.6% at 4,990.25 and Germany’s DAX lost 0.9% to 12,000.44 points at the close yesterday, despite a 28% rise in first quarter profits at car giant Volkswagen.
The FTSE’s dive was its biggest one-day fall since last year’s referendum vote to leave the European Union.
But the pound rose to a four-month high, hitting the value of multinationals.
In New York, the Dow Jones index slipped 0.7% two hours into trading.
In a surprise announcement, British Prime Minister Theresa May earlier called for an early general election on June 8 as Britain prepares for delicate negotiations on leaving the European Union by 2019.
“May has surprised markets,” said David Cheetham, chief market analyst at XTB trading group.
“The pound has recovered from some earlier jitters when news of a statement from the PM sent sterling falling.”
British finance minister Philip Hammond hailed sterling’s surge.
Hammond said May’s decision to call a vote which early polls suggest her Conservatives will win handsomely demonstrated “the confidence that the markets have” in her administration.
Jasper Lawler, senior market analyst with London Capital Group, said that “the kneejerk positive reaction in the British pound to the snap election aligns with our view sterling has seen its worst.”
He added: “markets have accepted Brexit so a snap election should just help Theresa May’s chances of getting a better deal for the UK” after it leaves the EU bloc.
Sterling, which has lost some 10% of its value since last year’s surprise referendum vote to leave the EU, added 1.6% to hit a ten-week high to the dollar of 1.2762 by the times London closed.
“This bombshell development has offered Sterling a solid boost, with markets now evaluating what impact this may have on the Brexit negotiations,” said FXTM research analyst Lukman Otunuga.
“The fact that May stated that she wants an election to ensure strong leadership that will deliver on Brexit may quell some related jitters in the short term,” Otunuga added, while cautioning that “longer-term bears could exploit the potential political uncertainty to drag sterling lower”.
Beyond Britain, traders were also focused on France less than a week before Sunday’s presidential election.
“The French presidential elections will dominate a week that also includes the first busy week of US earnings season,” said a note from Deutsche bank.
“market-friendly candidate (Emmanuel) Macron remains well ahead... but obviously there’ll be some concern with the first round getting tighter that he’ll fail to be in that run-off.”
An unpredictable race has narrowed dramatically in recent days, with polls suggesting four candidates are vying for a May 7 run-off.
Scandal-hit conservative Francois Fillon and radical leftist Jean-Luc Melenchon are steaming up behind the two frontrunners – Macron and French far-right leader Marine Le Pen.
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