INSIGHTS

FINANCIAL MARKETS EYE THREE BIG EVENTS THIS WEEK

Mark Lister , 6 June 2017

Three big events are looming this week – the UK election, an important central bank meeting in Europe, and the testimony of former FBI director James Comey in front of the US Senate.

These all have the potential to send financial markets into a spin, and knock them off their record high perch. They also all happen to take place on Thursday in the Northern Hemisphere, so it could make for an interesting end to the week here in New Zealand.

Polls close in the UK general election on Friday morning (our time), so exit polls will emerge immediately afterwards giving the first indications of how Britain has voted. If it’s a relatively clear result, the outcome should be known sometime Friday afternoon.

At present, Theresa May’s Conservatives have a rather narrow majority in parliament, and they’re hoping this election will deliver them a stronger position.

If they can do that convincingly, we should see the pound rise on the back of greater certainty. If they are left with nothing better than the status quo, that would be a defeat for May and the currency will likely go lower.

The surprise scenario would be a victory for Jeremy Corbyn and the Labour Party, which would almost certainly see a negative kneejerk reaction from markets.

The latest polls have the Conservatives with only a slim lead over Labour, compared to a healthy one when the snap election was called back in April. It might be close, and we all know what happened the last time markets took a major vote in the UK too lightly.

 A little further east, the European Central Bank (ECB) will be meeting in Estonia on Thursday evening, and the outcome of this will be equally interesting.

The European economy is undoubtedly improving, and political uncertainty has faded in the wake of elections in the Netherlands and France. Things aren’t quite healthy enough for the ECB to start increasing interest rates yet, but they might set the wheels in motion for a reduction in the level of stimulus they’re providing.

If we do get some “taper talk” from the ECB, markets could get a bit jittery, in the same way they did when the US Federal Reserve starting discussing plans to reduce its QE programme a few years back.

A third potential source of volatility could emerge from the other side of the Atlantic. Former FBI director James Comey is scheduled to testify before the Senate Intelligence Committee on Thursday morning in the US.

Markets will be watching closely for any suggestions President Trump attempted to influence Comey’s investigation into former national security advisor Michael Flynn.

There’s every chance the Tories romp home in the UK, the ECB plays it cool, and no smoking gun emerges out of Comey’s testimony. On the other hand, we could be in for an exciting Friday in our time zone across financial markets.

This article was published by The New Zealand Herald on 6 June 2017 under the title ‘Mark Lister: Financial markets eye three big events this week’