UK Election:

Theresa May called this snap election because the polls 7 weeks ago suggested that she would increase her parliamentary majority. As happens in politics today, she managed, through a confused manifesto and perhaps a little hubris, to lose her slim majority and now seeks an alliance with the Democratic Unionist Party of Northern Ireland. So we move from a Hard Brexit not to a Soft Brexit but a Weak Brexit. It will be difficult to maintain a hard line when the two Ireland’s share a physical border. Now, as we have learnt from Anglo Saxon politics, anything can happen. May might not survive for long, there could be another election in the offing and by the way, Brexit negotiations begin in a week. The EU must be wondering who will sit across the table then. In the meantime, markets seem to have taken it in their stride. Sterling fell sharply but UK stocks rose and gilts barely flinched. The economy is slowing

French Elections:

France is giving Europe more hope. Macron’s centrist party is expected to win a in a landslide which would provide Republique en Marche with a strong mandate to reform and perhaps reinvigorate Europe. Not bad for a party but 14 months old. Europe needs new ideas and a new approach and Macron and REM could just be the thing. France is the second largest economy in the EU and would be the foil Germany needs for a more viable union. It is a pity, however, that the EU loses its pro-business lobby in the British.

Central Banks:

The RBI left rates unchanged to the consternation of the government. The Indian central bank judged that inflation pressures were moderate but that also the recent weakness in output was likely a transitory remnant of the demonetization exercise. It hedged its bets by lowering inflation forecasts significantly. Interestingly, the RBI opined that the coming implementation of GST would have little impact on inflation.

The ECB last week ruled out further rate cuts in the first signs it is considering rolling back stimulus. Growth has rebounded in the last 12 months but the ECB will likely be glacial in tapering its QE as inflation has yet to show any signs of revival. The ECB is expected to be more explicit about its balance sheet plans in September.

This week, look out for the FOMC, BoE and BoJ. The Fed has telegraphed its intentions well and is unlikely to surprise, delivering a quarter point hike. The BoE has an unenviable task of balancing a slowing economy and inflation rising by reason of a falling currency and the BoJ, while firmly in accommodation may want to telegraph exit plans early on. Or not.

Technology Sector:

One day does not make a trend but soaring valuations in the technology sector (tech) are giving investors pause. Nasdaq fell 2.5% on Friday as the rest of the market advanced. There remain good growth stories in the tech sector, particularly in new areas such as VR and AR, especially in AR where an entire ecosystem beckons. The gaming sector is at the forefront of these technologies as gamers tend to be willing and paying guinea pigs. Microsoft announced that on Nov 7 it would launch X Box One X, a 4K ready console. At Sony, demand for PS4 Pro and PSVR have outstripped how quickly Sony can build them. At the more mundane end of the market, gaming companies continue to reap the rewards of moving from discs to online distribution boosting margins and cross selling of in game content.

 

Week ahead:

Jun 10

  • China credit data

Jun 11

  • Japan machinery orders, PPI

Jun 12

  • India industrial production, CPI

Jun 13

  • UK inflation
  • German ZEW Economic sentiment index
  • Spain inflation
  • US PPI

Jun 14

  • FOMC meeting
  • German inflation
  • US CPI, retail sales
  • Japan industrial production
  • UK employment data
  • Eurozone industrial production

Jun 15

  • BoE MPC
  • SNB MPC
  • French inflation
  • UK retail sales
  • US industrial production, Empire State and Philly Fed

Jun 16

  • BoJ policy decision
  • Eurozone inflation
  • Singapore exports