Week In Review
The Conservative party lost their parliamentary majority in the British elections after losing at least 12 seats. However, the Conservatives still have a large plurality of the seats and quickly moved to form a coalition government with the unionist party holding seats in Northern Ireland. The pound slid, as this result increases uncertainty around Brexit and policy in the UK.
PM Theresa May called this election in an effort to strengthen the Conservatives’ majority and her position heading into Brexit negotiations in a few weeks. After this poor showing in the elections, May’s position as leader of the Conservatives and Prime Minister is much more in doubt, and the government does not have as clear of a mandate to pursue a hard Brexit. This election result increases the chances of both a much softer Brexit agreement and an inability to negotiate an agreement with the EU.
The ECB ruled out further interest rate cuts following its meeting, and Draghi stated that risks in the Eurozone are now “broadly balanced.” The ECB’s quantitative easing program will continue into next year, but expectations are for that to taper at that point.
The ECB, along with all other major central banks, is still in a very accommodative position, but this is a shift in momentum towards an eventual tightening. It is encouraging to see the ECB moving along with the Fed to normalize monetary policy and reduce the distortions introduced by the extraordinary measures implemented in recent years.