As we sit here in early June markets are distinctly lack luster . . with movements of less than 1% in US markets in the first four trading days. There was a holding of collective breath in advance of “Triple Risk Thursday” on June 8, and it is fair to say that the various anticipated milestones did not fail to deliver. The UK general election outlook had moved from an apparent lock for the Conservative party to increase its majority under the leadership of Theresa May, to a less certain forecast and the actual result was a reduced Conservative majority, a hung parliament and a crisis of confidence in leadership. It looks like 2017 has just as much potential for political surprise as 2016. Some of this result reflected a slow ebb of support for Theresa May that coincided with the Manchester terror attacks in late May, and that shift had continued in the aftermath of a second attack on London on the evening of June 3. It is interesting, and we commented earlier, that markets are largely immune to attacks on this scale now . . but perhaps the voter is not.
The second “risk” for Thursday is the ECB decision on monetary policy. In the end it was a dovish outcome that transpired – there was a modest upgrade to economic forecasts (by only 0.1%) and an expected removal of the “or lower” rates guidance. So we may have seen the end to rate cuts in Europe, but the pull back of asset purchases and quantitative easing may indeed be a slow burn. The bank also revised core inflation forecasts lower – to sub 2%, which is contrary to some of the anecdotal observations on the ground.
The final “risk” for Thursday was James Comey’s congressional testimony, which failed, perhaps, to provide the smoking gun Democrats had been looking for, but did raise some serious questions about the overall tone set in his interactions with the President. Currently one side is viewing this testimony as “vindication”, while citing “lack of experience” as a justification for untoward suggestions, while the other is circling the wagons for a deeper investigation. Meanwhile, on the sidelines a revised healthcare plan is gathering steam in the Senate. It will be an interesting few months ahead, and important to separate actual legislative progress from the swirls of noise that are pervasive around it.