Internationally: June 5 - 9, 2017
Purchasing managers’ indices released this week show that the Eurozone continues to outperform other developed economies. The Eurozone composite PMI, which measures both manufacturing and services, stood at 56.8, unchanged from April. Meanwhile, the United States clocked in at 53.6 and the UK at 56.7, just below April’s 56.8 three-year high. Japan’s composite PMI registered 52.6 and China’s 51.5.
With the economy on the upswing, European Central Bank president Mario Draghi announced last week that the bank is dropping its bias toward cutting interest rates. However, it retained its bias toward increasing quantitative easing, if necessary. The bank raised its growth forecast while at the same time cutting its inflation outlook. Risks to the economy are now broadly balanced, he said. The overall tone of Draghi’s press conference was decidedly dovish.
Prime Minister Theresa May’s gambit to improve her Brexit bargaining position by calling a snap election did exactly the opposite, increasing the uncertainty around the Brexit process. The Conservative Party lost its outright majority in the House of Commons. It will be able to form a government with the backing of the 10 members of Northern Ireland’s Democratic Unionist Party. Politically, May is seen as living on borrowed time, and could be replaced as party leader in the near future. Early indications are that May’s failure to secure a larger parliamentary majority undermines the case for a “hard” Brexit, for which the Tories campaigned. That is one reason — along with a weaker pound — that markets have taken the election outcome in stride so far. A softer Brexit is seen as less disruptive to UK business interests. One side note: A very poor showing by the Scottish National Party is seen as halting momentum toward a second referendum on Scottish independence.
The president of the Spanish region of Catalonia, Carles Puigdemont, announced on Friday that an independence referendum will be held on October 1. The Spanish government strongly opposes the referendum on constitutional grounds, as it did in 2014 when the country’s constitutional court ruled a previous vote invalid. Under the Spanish constitution, Madrid could resort to suspending the region’s autonomy to thwart the plebiscite.
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