FTSE 100 set to open sharply lower as hung parliament and rout in US equities weigh

Britain woke up the prospect of a hung parliament, as results from yesterday’s voting continued to trickle in. By 7:30 am the Conservative party was in the lead with 285 seats, Labour on 231 seats and the Liberal Democrats, to many commentators surprise on only 50 seats.  To secure a majority in the Houses of Parliament one party needs to secure 326 seats, which based on projections will not happen for the Conservative party. Labour rhetoric throughout the night has suggested they may try to form a coalition government with the Liberals, but it is not yet certain whether the two parties combined seats would even achieve that.

The result of the election weighed on FTSE 100 futures, pointing to a 130 point drop at the open, which was would be one of the sharpest moves in 2010, but investor’s were more spooked by a rout in the United States last night, were both the Dow Jones Industrial Index, NASDAQ and S&P 500 all fell more than 3%.   At one point, the Dow actually fell more than 900 points, or nearly 10% - the worst fall ever recorded, but sources are now pointing to an error by a large bank using high frequency trading techniques (software that can execute large volumes of trades).

Many analysts in the United States were equally surprised by price action in spot Gold, which soared above $1200/ounce, smashing its previous all time record. Gold is currently trading at $1203 an ounce, and defied a stronger US dollar last night and a rout in equity markets and oil futures.

Gold bulls however reiterated their view that the surge in gold was safe haven buying as investors continue to fret over the risk of Greece’s debt problem spreading to other countries in the European Union, with particular concerns surrounding Spain and Portugal.

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