ECB likely to withdraw support

Growth becoming self-supporting

In a speech yesterday, ECB Council Member Yves Mercsch commented that the ECB is close to removing its negative outlook for the Eurozone economy. Being a conservative central banker, he couldn’t bring himself to say the outlook was positive preferring to move to neutral first.

Mario Draghi, the ECB President is becoming more confident in the ability of the Eurozone to grow without extraordinary support. It is likely that at the next monetary policy meeting on 8th June there will be a scaling back of the asset purchase scheme. This was put in place to provide liquidity to the economy during the darkest days of the financial crisis.

The ECB was the last Central Bank to move towards a programme of quantitative easing following the Federal Reserve and Bank of England. It is likely Germany exerted pressure to whether the storm given the spectre of the inflationary effect of “printing money” in their history.

Future doctoral theses will no doubt put forward alternative solutions to how Central Banks could have dealt with the crisis but King and Carney at the BoE, Bernanke and Yellen at the Fed and Trichet and Draghi at the ECB deserve enormous credit.

The Euro fell yesterday on profit taking having reached a twelve month high immediately following the French election result. There is strong buying interest at 1.0920 and it is likely that a further test of 1.1020 will take place in the coming days.

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Macron faces sceptical electorate

The new French President will have to face the fact that he was almost the default candidate for those not able to face the prospect of a “hard right” candidate. Turnout for the election was a little over 65% and Macron won 66% of the vote. In the previous two elections turnout was well more than 70%.

A vote for Macron was, it seems, a vote against Le Pen. having only started his political party, En Marche, a year ago, M. Macron faces an uphill struggle to find people with experience in Government to fill his cabinet. He is probably going to find, as did Donald Trump, that campaigning is a darn sight easier than Governing.

Political stability, no matter how it is achieved, is a vital part in the economic recovery of the Eurozone. Had the French voted differently, the whole future of the E.U. would have been called into question. Macron is correct to call for reform but there is no particularly strong anti-EU feeling in the country despite terrorist and immigration issues.

U.K: Heading for a landslide

Whoever finally persuaded Theresa May to call a General Election for early next month will surely be in line for an honour when they are next handed out!

The latest opinion polls in the U.K. put the Conservatives twenty-five points ahead of Labour and on course for a landslide victory. Complacency and boredom are the only things standing in the way of a majority of close to 150 seats. Thatcher and Blair also had similar majorities receiving huge mandates for change.

Mrs May may have to contend with a comparable situation to Emmanuel Macron. Defections from the opposition parties, particularly Labour and UKIP will be peculiar to this election which is about strong and stable leadership going into Brexit negotiations. There are still major concerns in the country about the handling of public services, in particular the National Health Service, taxation and education.

The pound is holding up well against a surging Euro. It is trading in a narrow 0.8420/0.8480 range whilst looking to break through the 1.3000 level vs. a dollar which is treading water.