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Week in Review: May’s dismay at shock election result

Week in Review: May’s dismay

This week: UK government uncertain, Eurozone interest rates unchanged, and a peacock - in a liquor store - unharmed.

Former British Prime Minister Harold Macmillan was once asked the most difficult thing about his job. He replied with the now famous “Events, dear boy, events.” Theresa May would likely agree.

With all but one seat declared, the Conservative Party won 318 seats, eight short of an overall majority, and down from the 331 that the Tories held prior to the election. Labour, meanwhile, holds 261 seats. The Liberal Democrats made some gains, while the Scottish National Party incurred bruising losses.

It is undoubtedly an embarrassment for Theresa May following her decision to hold a snap election to help the Conservatives deliver the “strong and stable leadership” she felt necessary to deliver Brexit. Clearly, that gamble has backfired. The Tories are expected to try to form a minority government with the Northern Ireland Democratic Unionist Party (DUP), while Labour has announced it will also seek to form a minority government and reject a coalition deal.

Sterling fell immediately in Asian trading as the results of an exit poll predicting a hung parliament were announced at 10pm on Thursday night. As markets opened on Friday, the pound slid to a new low, sinking below $1.265 against the dollar and falling against the euro.

Meanwhile, the FTSE 100 Index of leading UK stocks, which was down 1.3% over the week to Thursday close, rose sharply on Friday as the election results came in. Many of the UK companies in the FTSE index are multinationals with significant overseas revenues, meaning a weaker pound makes their exports more competitive and boosts earnings in sterling.

London attacked

London experienced its second terrorist incident in three months last Saturday as three men attacked pedestrians and revelers in the London Bridge and Borough area. Police arrived promptly shooting all three suspects within eight minutes. Eight people have been confirmed dead, and an additional 48 are injured and in the hospital. Police have raided properties in Barking and Ilford, and investigations are ongoing.

Green shoots prompt optimistic ECB forecasts

On Thursday, European Central Bank (ECB) President Mario Draghi left interest rates unchanged and indicated they would remain “at their present levels for an extended period of time.” The subtle change of language suggests rates are likely to rise from here, although a hike seems some way off.

Draghi’s interest-rate announcements were driven by the ECB’s rosier outlook, with growth forecasts raised for the next few years. Gross domestic product (GDP) growth is expected to be 1.9% in 2017, up from 1.8% expected in March, and growth forecasts for 2018 and 2019 have been raised to 1.8% and 1.7% respectively. The ECB also cut its inflation forecast for the next few years, driven by lower oil prices and meager wage growth. Despite the optimistic forecasts, Draghi confirmed continuation of the Bank’s €60 billion (US$67 billion) a month asset purchase program until the end of the year.

Au revoir Qatar

Qatar found itself isolated this week, as Saudi Arabia and its allies, including Bahrain, the United Arab Emirates and Egypt, cut diplomatic ties on accusations that the tiny rich Gulf state is harboring and financing terrorism. Its support for Islamist organizations was seen as a serious threat to stability in the region. However, Saudi Arabia’s official rhetoric has been questioned by some, with the reason for the cut in ties attributed to geopolitical jostling between the two main strategic players in the Middle East – Saudi Arabia and Iran. U.S. ratings agency Standard & Poor’s downgraded Qatar’s long-term credit rating to AA-.

Nevertheless, oil prices continued on their downward march, falling more than 4% on Wednesday after the U.S. government reported an unexpected increase in U.S. crude stocks, confounding expectations of a fall in supply.

And finally…

Isn’t it frustrating when you go shopping and can’t find what you’re looking for? Well, spare a thought for a Californian peacock who was perusing fine wine in a Los Angeles liquor store this week. The sharp-clawed bird had stealthily managed to enter the store unbeknown to manager, Rani Ghanem. But feathers were ruffled when Ghanem was informed of the unusual customer and promptly called 911. An animal-control officer tried to catch the agitated avian in a fishing net but it had other ideas, flapping its large wings and knocking over several bottles of expensive wine and champagne. Eventually, the peacocking stopped and the bird was taken outside and freed without charge, having caused $500 worth of damage.

Important Information

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.

Indexes are unmanaged and are included for illustrative purposes only. You cannot invest directly in an index.

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

Image credit: Matt Cardy / Stringer / Getty Images

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