Duncan Donald

Tue, May 28

KYLIN TALK | Weekly Markets Update 28.05.2019

Over the weekend we saw the results of the long-awaited European elections and as expected, pre-European parties fared well meaning for the majority of Europe the path of rule will not deviate leaving things very much as they were. There was a slight shift towards Liberal and pro-green parties but on the whole, the voting consensus was broadly consistent with expectations leaving the Euro broadly unchanged in value during what could have been an illiquid session on Monday due to bank holidays.

There were 3 significant regional deviations in votes that will spark further action in Italy, Greece and the UK. In Italy, a strong showing from Matteo Salvini's party could push them to end their coalition with the Five Star party and form an alliance with Berlusconi's Forza Italy party (An anti-EU party) alternatively they could use the populism to push for an earlier general election.  In Greece, Alexis Tsipras the Prime Minister saw his Syriza party defeated as the pro-European New Democracy Party emerged as the victor. This makes a general election in June or July increasingly likely.

Finally in the UK whilst a shift in voting pattern was expected as both of the main parties, the Leading Conservative Party and opposition Labour party, have increasingly struggled to impress the public over their handling of Brexit.  The degree of the shift of vote brought further pressure on both, as Nigel Farage's pro Brexit party fared well collecting nearly 35% of the vote.  As was consistent with the rest of Europe, the Liberal and pro-green parties fared well.  What was notable is that despite the emergence of Farage's pro-Brexit parties, as a collective party with anti-Brexit stances gained a slightly higher majority at 40.4% of the votes. The Conservative parties seats fell to just 9.1% and Labour took just 14.1%.

Last week finally saw the UK Prime Minister tender her resignation sparking a Leadership challenge within the Conservative party. Her tenure will not be fondly remembered in UK history as she led the party through the unsuccessful Brexit negotiations and seen her parties populism fall both internally and externally and the countries global stature slip as the endured unsuccessful negotiations with the EU whilst always appearing underprepared and underskilled to achieve what the country had originally voted for. With the October deadline looming for the finalization of a Brexit deal, there will now be a short Leadership contest with 8 Conservative MP’s putting themselves in the frame. The front runner is Boris Johnson who immediately announced his intention to run, sparking concerns from the market as he declared we will leave in October with or without a deal.

The last few weeks have brought the Pound under significant pressure as it completed nearly 2 weeks of consecutive depreciation versus the US Dollar. Whilst the US has enjoyed strength in that time, it is without question that the rise of hard-line No-deal populism is of course a concern, as well as the concern over finding a Prime Minister who is capable of negotiating a strong deal for the UK’s departure, a situation highlighted in the fact Dominic Raab is running for PM, having resigned from his post of Chief Brexit negotiator to the EU under Theresa May as he felt he couldn’t get anywhere. The EU elections also highlighted an issue that Westminster has been “parking” as in Scotland, the Scottish Nationalist Party won in all but one region, as Scot’s showed defiance to Parliament, and cements validity for a second independence referendum, potentially further diminishing the UK’s collective strength.

Over the weekend US President Donald Trump was in Japan where he was discussing a trade deal between the countries. In his signature Twitter updates he alluded to the fact that the talks went well between the nations. As tensions between the US and China grow and stocks retreat and flight to comfort investment surges, it appears Trump is intent on prioritising other international trade deals (Firstly Canada and now Japan) ahead of China, however without question this deal remains the largest and most important. How both economies are progressing as the deal hits this stumbling bloc will be telling, so Thursdays release of US GDP and Friday brings Chinese Manufacturing Data which will both play a significant role in market direction.


The Week Ahead

Monday - Bank Holidays in the UK and US

Tuesday - German Gfk consumer climate in the morning as well as the Bank of England's Mark Carney speaking at the UK Inflation hearing. In the afternoon US consumer confidence.

Wednesday - ANZ Business confidence from Australia and New Zealand's Governer Orr speaks at the start of the session. Up next is French CPI and GDP before German Unemployment. In the afternoon at 3pm the Bank of Canada interest rate decision, where forecasts show expectation of rates remaining at 1.75%.

Thursday - We receive Australian Private Capital Expenditure and New Zealand's Annual Budget release. In the afternoon session US GDP will dominate the markets alongside Wholesale inventories.

Friday - First up we have Chinese Manufacturing and non-manufacturing PMI Data. In the European morning we have UK Mortgage Approvals and net-lending data. In the US session we get Canadian GDP, as well as US Personal Spending and Personal Income and Chicago PMI’s.