With the thorn of Ukip in his side David Cameron knew that he had to do something about 'Britain and the EU' before the niggling wound became infected and caused even more problems down the line. Whilst short of real substance regarding exactly what powers he would like to repatriate ahead of any referendum (and of course ahead of a very unlikely Conservative majority at the next General Election as things stand when looking at the polls), it at least was an engaging and articulate speech (you would expect little less from a PR man) which has attempted to bring the Europe issue back to the forefront of politics.
Time will tell in the near term as to whether this gamble has paid off, as the tiny bounce in the polls that the Conservatives have enjoyed only a few days after the speech isn't enough to provide evidence that the issue is on the top of voters' agenda and if we see the bounce fizzle out quickly, then we'll have a fairly good idea that Europe is not the most pressing thing on people's minds right now. As things stand it would certainly seem that it definitely isn't going to be a General Election winner and it wasn't all that long ago that former Conservative leader William Hague fought his 2001 campaign with a purely "anti-Europe and save the pound" message, only to succumb to another landslide defeat.
As far as investors are concerned it really is far too early to tell, especially since any potential referendum is way off - it is dependent on that all-important outright Conservative majority at the next election and it will almost certainly be watered down or scrapped altogether before 2017, as we all know that politicians are notorious for breaking their promises.
Interestingly however, the stock markets did actually weaken during and straight after the speech as all the promise of a referendum on EU membership serves to do for financial markets and investors is increase uncertainty. It was also the more domestic orientated indices that suffered the most, with the FTSE 100 and its more globally exposed weighting seeing only the very mildest of weakness. The secondary index, the FTSE 250, on the other hand saw a slightly more pronounced sell off. The FTSE 250 though, like its bigger brother, has many constituents that derive a great deal of their earnings from abroad, so there's little to read into the declines. However if you look at our own Capital Spreads UK 30 index, made up of stocks that derive more than 70% of their earnings directly from the UK, the sell off was rather more pronounced. The weakness did not last long of course for the reasons mentioned above and before you could say "referendum" investors had shrugged of the speech and within 24 hours equities were pushing to new highs for the year.
But the sharper decline in our UK orientated index, compared to the more internationally weighted FTSE indices, should be considered a warning shot to the Prime Minister that a referendum is likely to make those domestic and multinational businesses that rely on a stable and strong single market with Europe extremely nervous.
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