Terror incident brings fear to the capital
As Manchester was preparing to honour those killed and injured in the attack of May 22nd another assault took place with terror returning to London’s streets. Six people were killed and dozens injured as a van was driven headlong into people out just “having a good time”.
It is not possible, nor am I willing, to equate such an event to the performance of the currency so I simply pay tribute to those who did what was necessary to bring order back to the Capital.
Election fears drive pound lower.
One of the concerns that has been at the forefront of Theresa Mays election campaign is the readiness of Labour to commence Brexit negotiations just eleven days after the election were they to be victorious.
The “wind has been taken out of her sails” to a certain extent by an EU announcement that “in need the start of negotiations could be delayed to allow for a change of Government”
At a stroke Messrs Tusk Juncker and their mouthpiece Michel Barnier have gained a significant psychological advantage.
The pound has fallen to its lowest level for almost two months as the euphoria of a snap election and a landslide victory has slowly evaporated. Against the euro the pound last traded at 0.8750 having fallen as low as 0.8770 on Friday.
There is a willingness to ignore opinion polls that have been discredited in the past but were they to prove accurate, it would be the most significant electoral event in the U.K. in living memory. A period of political uncertainty were negotiations with the Eu were punctuated by a second election in 2017 would be an economic disaster.
A Hung Parliament spells catastrophe.
Were Thursday’s vote to be inconclusive, a number things would happen. First, sterling would collapse as investors desert the U.K. and liquidity disappears completely. Any strategy for Brexit would be thrown into disarray and the possibility of a further election would become a probability.
A coalition of two or even three of the seven major parties is hard to countenance and would lead to deals being done that while politically expedient would not necessarily be in the best interests of the country.
From being a “walk in the park” punctuated by the odd speech about complacency, Theresa May now finds herself in a dogfight ironically all her own doing.
It is doubtful that we have reached the “it’s anyone’s guess who will win” stage as the Conservatives still hold 5%+ lead which would translate into a 15-20 seat majority. All that does is return us to where we were and does absolutely nothing for the economy, Brexit prospects or any other reason the election was called in the first place.
Jobs data hits dollar
The notoriously fickle nature of the non-farm payroll report came back to bite the FOMC. As I reported on Friday, “It seems rather cavalier of a Central Bank to pin any change in monetary policy on a data release so unpredictable as NFP!” and so it proved. The U.S. economy added 138k new jobs in May and the April figure was revised down to 174k to 211k.
It has been the norm in the pat for the economy to be adding 250k new jobs at this stage of the economic cycle as the Fed is forced to raise rates as wages start to take off. This cycle is clearly not the norm as the Fed doesn’t see the necessity to shrink its balance sheet adding stimulus while raising rates.