- Digesting 'shock' UK election stalemate, busier statistical schedule
likely to be little more than roadkill, Venezuela default risk also
looms large
- UK election: May departure a case of 'when' not 'if'; DUP likely to
be pact or coalition partner; Tory leadership contenders all have their
detractors; business investment decisions likely to be deferred
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** EVENTS PREVIEW **
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It is more than likely that a busier statistical schedule today may prove to be little more than roadkill as politics rules the roost, even if markets' reaction function still displays every sign of being very heavily impaired. Be that as it may, there are the China inflation readings to digest along with German Trade and French Industrial Production, while ahead lie Trade and Production data for the UK. A close eye also needs to be kept on Venezuela, where a second default, in this case to South American supranational development bank CAF follows the one earlier this week to Russia, suggests that this car crash economy, so beloved of UK Labour leader Corbyn, has met something more than just its Waterloo, a tragedy and a reminder for all those embracing LatAm sovereign debt as a panacea for, or antidote to, financial repression really need to be more discerning (any form would be good).
** U.K. - General Election **
- In the history of political mis-steps, Mrs May's decision to call this election and then to throw away what had been expected to be a landslide win will go down in the record books. Even if Mrs May refuses to do the honourable thing and take responsibility for a calamitous campaign, her days as PM are clearly number, the question is when not if. Given that the Liberal Democrats have ruled out any form of pact, let alone a coalition, this leaves Northern Ireland's DUP (Democratic Unionist Party) as the most likely coalition partner for the Conservatives. So who might take over from May? The bookmakers have the blustering Boris Johnson as the front-runner, even though he is very clearly a very divisive character, and have Chancellor Hammond as second favourite, with Home Secretary Amber Rudd (heavily pro-Remain and who only just managed to win her seat) and Brexit Minister David Davis also seen to be in the running. Scottish Tory leader Ruth Davidson will also be seen as a contender, though the idea that the very English Conservative party would choose a Scot as leader looks to be quite a stretch of the imagination. There will certainly be no cheers in Brussels, Berlin or Paris about this result, given that a shaky coalition or minority government would likely be a rather indecisive negotiating partner, which might well chop and change its position. In turn, this also underlines that the biggest problem with this result is that it will likely deter many businesses (domestic and foreign) from investment decisions, given a very murky outlook, and overall suggests a period of at best weak GDP growth, and elevated inflation, and more than likely little or no chance of BoE rate hike in the foreseeable future. Thus far, the drop in the GBP on FX markets has been reasonably well contained, especially given the level of uncertainty, but the risks in outlook terms are now firmly skewed to the downside. Precisely why the not very representative of the UK FTSE 100 index is up by about 0.6% beggars belief, and underlines the extreme level of impairment of financial markets' reaction function.
from Marc Ostwald
