Nerve-wracking week for markets

Jeremy Crang
of Craigs Investment Partners
It has been an exciting yet nerve wracking week for markets in the build-up to what was been dubbed “super Thursday”. Investors were on edge waiting for results from the British election, the European Central Bank meeting and the testimony from former Federal Bureau of Investigation director James Comey to the senate.
The British election was called by the Conservative Party’s Theresa May in April. The snap election was called to strengthen the mandate for the conservative party for Brexit negotiations and at the time, this made complete sense. The Conservative party had a 21-point lead in the polls ahead of the Labour Party so this would certainly have strengthened the party’s position. However, it was an election campaign like no other, disrupted by two terror attacks, which saw polls tighten significantly.
As exit polls came to light, the Conservative Party was set to hold the advantage but did not appear to have the numbers to get a majority. There are 650 seats in the British parliament, meaning that to get a majority the Conservatives would been 326. Exit polls suggested that the break down would be 314 seats to the Conservative Party while the Labour Party would get 266, suggesting a hung parliament.
At the time of writing votes were still being counted, and would continue throughout the night. The initial reaction from the currency saw the pound drop sharply as the market digested the possibility of a hung parliament and the uncertainty that could cause for the United Kingdom.
The ECB meeting was another major event the market was watching closely. Expectations were for the bank to begin to talk about tapering the massive quantitative easing programme it has undertaken over the past few years, as economic data from the region continues to improve. However, this turned out to be a non-event, with no changes made. The central bank continues to believe that monetary policy will need to remain accommodative and with underlying inflation remaining subdued the bank is still ready to increase asset purchases should they need to.
The third and final event for “super Thursday” was the testimony from James Comey, the ex-director of the FBI, to the Senate intelligence committee. The testimony had been built up to be something that would rock markets and all eyes were on Washington. However, the testimony concluded without any significant revelations for the market and they resumed a business as usual approach believing that it had not affected the prospect for tax cuts and infrastructure spending. However, the political world remains fixated on the testimony after Mr Comey accused the White house of lying.
The holiday shortened week at home still brought with it some interesting news. The latest Global Dairy Trade auction saw the sixth rise in the headline dairy price index, gaining a further 0.6%. Prices are now back to levels not seen since June 2014. Disappointingly, the price for whole milk powder slid 2.9%, the first decline in seven auctions. This was the first auction since Fonterra announced the final payout for the current season of $6.15 per kilogram of milk solids and it also announced the initial forecast for the next season at $6.50.
The ECB was not the only central bank to meet this week, with Reserve Bank of Australia also holding its June meeting.
As was expected it held rates steady at the historic low of 1.50%. Once again, the commentary was being watched closely. However, the rhetoric was largely unchanged from the last meeting except concerns over first quarter growth were raised. The GDP figures released the next day confirmed fears of slowing growth in the first quarter with growth of only 0.3%. Despite this, the market rallied following this release as the GDP reading was not as bad as some expected.
This article should not be deemed as advice. A disclosure document is available free of charge and on request.
Contact Jeremy Crang at Craigs Investment Partners, ph 03 379 3433 or e-mail jeremy.crang@craigsip.com