It’s been a quiet couple of days in the financial markets as investors in Europe celebrated the May bank holiday, heavily hitting trading volumes in the lead up to a massive weeks for investors.
Under normal circumstances, this would be a big week for the markets with large amounts of tier one data being released, none bigger than the jobs report on Friday. This is especially true following the latest FOMC statement which suggested that despite the slowdown experienced in the first quarter, a rate hike this year is likely as the economy is expected to bounce back.
If this is the case, we should at least start to see a rebound in the data this week. If the economic recovery is as strong as the Fed would have us believe, the improvement in the data should be substantial with the backlog in spending and hiring being carried through into the second quarter. Friday’s jobs report is the big one though and it’s likely to be the one that alters people’s rate hike expectations more so than any other. Strong job creation and earnings growth would surely put the focus on September for the first rate hike.
The jobs report is far from being the only important event this week though. The UK Parliamentary election takes place on Thursday and not only is it the closest election in decades, it offers the possibility of two parties that are further apart in their approaches that we’ve seen for a long time. Labour is more left leaning than the previous Labour government and will probably need to rely on the support of the even more leftist Scottish National Party to form a government. The anti-EU sentiment among Tory back benchers is also dragging the Conservatives more to the right in an attempt to claw votes back from the UK Independence Party.
The markets haven’t been overly concerned about this until recently but the pound is looking a little weaker the closer we get to the election. Both options offer their downsides with Labour seen as being less business and wealth friendly while a Tory government brings with it an in/out EU referendum before the end of 2017 which brings great uncertainty for voters. All of the uncertainty around the outcome of Thursday’s election already appears to have had an impact on investing in the run up to the election and could be seen more so in the coming days.
In the eurozone, Greece continues negotiations with its creditors today as time runs on its ability to fund itself. A €763 million repayment is due to the IMF next week which Greece may not be able to afford, despite desperate attempts to call in all excess funds from public sector accounts. This makes negotiations this week hugely important and could weigh on sentiment as we approach the week in case it all falls apart before Monday’s eurogroup meeting.