After a raft of recent key risk events to impact on markets in recent days the interest shows little sign of any let up as the markets deal with the continued fallout from the UK General Election. However increasingly attention will begin to turn to the major central bank meetings this week with main focus on the FOMC decision. How are forex, equities, and commodities markets set up?
Politics in the UK is once more in a state of flux as the General Election returned a hung parliament. Theresa May is battling on, in the face of a perceived loss of public opinion, a “lame duck” Prime Minister. The Conservative got what they deserved in this election. They lazily assumed (as many commentators did) that the country would reject Jeremy Corbyn, as the opinion polls had apparently been showing for the past two years. However, a turgid campaign, littered with an inability to win arguments on a host of key areas (Brexit, social care and security) cost the Tories dearly. Labour’s socialist leader bolstered, whilst the Conservatives left with significant damage. The minority Conservative government propped up by 10 DUP MPs from Norther Ireland is not strong or stable and this could mean serious problems for the Tories to do achieve of any note in government. This could ultimately lead to yet another election being held, perhaps even as early as October. Aside from Labour, the big winners were the 27 EU leaders what are set to battle with the UK in the Brexit negotiations in the coming weeks. For the markets, the one thing that does not play well is uncertainty. Sterling has dropped sharply, and could remain under pressure, continuing to underperform. It is also interesting to see that the negative correlation between sterling and the FTSE 100 is also back on with a rally in large cap equities (although the domestic based companies are faring less well).