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The U.K Election
On Friday, the U.K market rallied with Blue chip Shares in the FTSE 100 gaining ground as the British Pound fell to a seven-week low after the general election left the country with a hung parliament, where no single party has a majority. In mid-trading, session U.K shares were off their highs and the pound recovered some ground on reports that Theresa May had struck a deal with Northern Ireland’s Democratic Unionist Party that allows her to form a government. However, it is still unclear whether the two parties would form a coalition or operate a "confidence and supply”, an arrangement that would see Unionists support a minority government on vital matters in return for some of their policies being enacted. Tracking the rally in the UK market all, Europe followed suit.
With politics firmly in focus, UK industrial and manufacturing production figures came and went with little fuss. Data from the Office for National Statistics showed industrial growth slowed in April as manufacturing activity bounced back slowly from a fall the previous month.
This Week
The shock of the U.K election dominated the weekend, but the attention now shifts to the Federal Reserve meeting on Wednesday. The committee is expected to raise the interest rates to 1.25%, the second increase this year. Financial markets have priced in a rate hike probability of over 90% as of Friday, up from around 80% a month ago. Signs of further growth in the US economy are key to this meeting. An eye must be kept on the commentary around the decision, especially on hints whether more hikes will be coming later in the year.
Also on the calendar this week are meetings of the Bank of England (BoE) on Thursday and the Bank of Japan (BoJ) on Friday, while UK CPI and unemployment data will also be in the frame. The Bank of England decision comes fast on the heels of the general election but no change on policy expected, although the view on inflation could provoke volatility in the British Pound. Meanwhile, UK inflation, retail sales, and wage growth data will be watched to gauge the extent to which rising prices continue to weigh on consumption.
The BOJ also decides on interest rates, though no changes to policy settings are expected. Solid economic growth and rising prices have raised expectations that the central bank could soon signal its intention to start withdrawing its stimulus. However, for governor Kuroda stronger signs of inflation are yet to be seen.
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