May survives Day One

U.K. facing Political and Economic Uncertainty

At least the sun is shining! With a political and economic forecast predicting “stormy weather” the U.K. has been basking in temperatures not seen in forty years. The temperature in Parliament came close to boiling point once opposition parties could voice their open contempt for the Government’s attempt to cling to power.

The Queen opened Parliament in a sombre manner befitting the mood which has enveloped the country over the past few weeks.

The Government’s legislative programme consists of a number bills related to Brexit and very little else as befits a group that will find it tough to reach the summer recess on July 21st, let alone govern for five years.

The pound traded below 1.2600 for the first time in two months as the dovish comments of BoE Governor Mark Carney were fully digested. Interest rate differentials are providing support for the dollar despite uncertainty about any further rate hike.

By any measure it has been a remarkable period for the U.K. No so long ago, the economy was performing well, growth was returning and the Government was seen to be in control of the Brexit process. Now, after a few short months there are real concerns about “stagflation, the Government has lost its majority and the Brexit initiative has been handed over to Brussels.

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May in Brussels to present revised Brexit plans

The British Prime Minister, Theresa May will attend a meeting with EU Heads of Government today at which she will present a more conciliatory programme regarding Brexit. Chastened by her recent “fall from grace” every aspect of her performance is being scrutinized.

The EU is taking full advantage of the weakness of the U.K’s bargaining position to ensure that it safeguards the interests of the twenty-seven remaining members. Following the initial meeting of the two chief negotiators earlier in the week it is clear that in every way, the EU will ensure that any concessions it allows are hard fought.

The Euro continues to be well supported despite the prospect of continues accommodative monetary policy for some time to come. Inflation is benign across the region. Germany has even seen inflation fall in recent months despite encouraging economic performance. Mario Draghi, the ECB President has managed to achieve consensus amongst his colleagues despite the diverse pressures each faces domestically. Today’s non-monetary policy meeting of the ECB Council will concentrate on “technical issues” most related to the Greek bailout and a review of the progress made by those newer members of the EU undergoing scrutiny to join the common currency.

Commodity Currencies Suffer as Oil Price tumbles

The Canadian, Australian and New Zealand dollars fell earlier in the week as the oil price suffered from a glut of supply. The CAD and AUD continue to be under pressure but a more hawkish, or at least less dovish statement by the RBNZ provided relief to the NZD.

OPEC which was a major global economic influence in the 1970’s and 80’s has waned in significance as oil production by non-member states has increased. The diplomatic spat between Qatar and the rest of the Gulf Cooperation Council has also led to a weakening of OPEC’s influence.

West Texas Intermediate (WTI) the global benchmark oil price has fallen by 20% over the past few months as concerns over continued growth in China coupled with record inventory levels have led to a glut of production.

The lack of economic data so far this week, is set to change tomorrow with the release of services and manufacturing indexes in the Eurozone and U.S. Despite the perceived need for rate hikes, this indicator has been “stodgy” in the U.S. whereas, in the Eurozone it has just been another indicator pointing upwards.