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Polarised politics

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Financial markets have reacted to a series of opinion polls suggesting UK exit from the EU. The Sun newspaper (circulation just over 2.5% of the UK population) has come out in favour of exit as well.
  • Volatility in markets reflects the problem of pricing in two completely opposing economic outcomes. Today's inflation data from the UK is likely to be subsumed by the political concerns. Sterling's recent weakness is too soon to have much inflation impact.
  • US politics was shown to be increasingly polarised yesterday. This emphasises another problem for markets seeking to price political risk. US retail sales today should give additional information on whether the stronger labour market is translating into demand.
  • The Euro area has Spanish inflation (not likely to be much of a focus) and industrial production. We believe that the Euro area economy's strength is domestically focused, and this is likely to be reflected in the data.