Election fever is not that hot

Posted by: Paul Donovan

27 May 2019
  • The European election results are not likely to interest markets too much. The Greek government called a general election. The far-right gained in France and Italy, but underperformed expectations elsewhere. The German SPD did poorly, which may lead to some speculation about the strength of the coalition.
  • The UK saw the country split evenly. Roughly one third supported the Brexit party, one third remain parties, and one third the main two parties. The Brexit support may raise market fears of a hard exit. The Labour Party performance may change investors' probabilities of a Labour majority government.
  • Speculation of a US-Japan trade deal has been increasing, with August seen as being the likely date. Of course, there was a lot of speculation about an early US-China trade deal as well. The problem now is that while individual deals are helpful, the general uncertainty created by trade taxes is creating economic damage.
  • China's government has warned speculators not to go short their currency. The renminbi was under pressure to strengthen when capital was flowing into China (the PBoC intervened to offset capital inflows more than the trade surplus). However, as that capital flow has stopped, the renminbi is under more pressure to weaken.

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