Expect the Unexpected

U.K. election fails to spark interest

Traders are in danger of becoming lulled into a false sense of security over the U.K. election.

Parliament ratified the Prime Minister's decision yesterday by a huge majority with only a few disruptive Labour M.P.’s voting against. The whole of the SNP contingent abstained seemingly unable to side with the Government over anything!

The relevance of the Scottish Nationalist Party has waned since they routed Labour in Scotland in 2015. Scotland had been a hotbed of Socialist support but the truism that Labour is unelectable without Scotland is now fact!

No matter the tauper being felt by the electorate, the foreign exchange market has endorsed the Prime Minister’s decision. The pound remains firm having consolidated around 1.2820. Against the Euro, the percentage gain has been less, but the significance of the pound’s rise is in danger of being ignored.

The single currency is in mortal danger. Traders have ignored, so far, the possibility of a Marine le Pen victory in France on May 7th. She is likely to run -off against centre-right reformist Emmanuel Macron. The surge of support for left-wing candidate, Jean-Luc Melenchon has the hallmarks of a protest vote given the disaster that the Socialist Government has been for France and its economy.

The effect of the terrorist attacks that have taken place, with alarming regularity, since Charlie Hebdo in January 2015 is yet to be truly felt. If the “silent majority” see Le Pen as the only candidate who can bring these horrors to an end, or at least bring perpetrators to justice, she could easily be elected. Sundays first ballot results will be eagerly awaited.

The twice-yearly IMF meeting gets underway today in Washington. Bank of England Governor will need to be nimble to avoid any references to the U.K. election and Brexit when he speaks. Like his American counterpart, he is in favour of “advance guidance”, but likes to remain close to his remit.

U.S. Treasury Secretary, Steve Mnuchin, has already advanced his political credentials, commenting that President Trump is not trying to weaken the dollar agreeing that, long term, a strong dollar is in everyone's interest. Mnuchin also praised China for its intervention to strengthen its currency.

The singular lack of significant data this week has seen traders sitting on their hands in reactive mode. That will change form next week with interest rate decisions in Japan and the Eurozone, growth data in the U.K. and U.S. trade numbers being released, capped by an E.U. Heads of Government meeting.

Mix in the first election interviews in the U.K. and the French election and we see quite a heady cocktail to whet trader’s appetite.

North Korea, if it is to back up its words with deed, could easily launch another missile test this weekend.

That situation has drifted away in people’s minds, but the threat remains real and with two such volatile characters in leading roles, a flare up leading to military conflict is never far from the surface.