- UK heads to the polls in the most important election in decades;
- Will ECB lay foundations for tapering, lower inflation forecasts, or both?
- Former FBI Director Comey testifies on President Trump.
Thursday promises to be a massive day for financial markets with major risk events taking place in the UK, eurozone and US that could create substantial volatility throughout the day.
The UK will head to the polls in what will be the most important vote in decades to decide who will lead the country into the Brexit negotiations and what direction it will take in the years to come. It’s been a long time since there’s been such a substantial difference between the choices on offer, which makes the result today all the more important.
From a markets perspective, this election is huge and could produce some substantial moves, particularly in sterling, the FTSE and UK debt. As we’ve learned from similar events previously – Brexit, US election – not only is the outcome not always obvious but the market reaction can also catch people off guard and that’s what’s had traders acting with such caution all week.
The most undesirable outcome is surely a hung parliament that produces both domestic political uncertainty and, more importantly, uncertainty and delays in Brexit negotiations. With the currently deadline being March 2019, any delay will be detrimental to the UK in negotiations and could therefore be devastating for sterling. While the knee jerk reaction to this may also be bad for the FTSE, as we saw after the EU referendum, we could see this bounce back quite quickly with the weaker currency benefiting its mostly outward facing companies.
Another major risk event today is the ECB meeting, which after reports yesterday of leaked draft ECB staff projections could be very interesting indeed. The leaked draft indicated that the central bank is revising higher its GDP forecasts but lowering its inflation forecasts through 2019. The euro fell quite heavily after the leak on the belief that such a change could alter the pace or timing of future tapering. It’s currently assumed that further reductions in asset purchases will be planned again at the end of the year, with possibly today’s and September’s meeting being used to lay the groundwork.
Finally today, former FBI Director James Comey will testify before the Senate Intelligence Committee regarding a number of events involving President Donald Trump including the links between his campaign and Russia, as well as allegations that he requested at the time that an investigation into his National Security Advisor – Michael Flynn – be dropped. Traders will be following the public part of the hearing with great interest and should there be any “bombshells”, it could ruffle the markets.
