UK

• There was political upheaval in the UK over the weekend as PM Theresa May’s decision to call a snap general election backfired spectacularly as the Conservative party lost its overall majority in parliament. The governing party won the election with 318 seats, but fell 8 seats short of a full majority forcing them to approach a small regional party to form an alliance. This will give May only a threadbare majority of two, which will remain inherently unstable and will never be far from the risk of collapsing. Another election in 2017 is entirely possible, bringing with it a now greater risk of an opposition Labour Party victory. Although GBP fell by only 1.6% on Friday against the USD, its vulnerability is likely to remain as political uncertainty persists, especially as the UK approaches critical Brexit negotiations from next week.   
• British political turmoil was in contrast to signs of stability in France with Parliamentary elections looking like they will provide President Macron with a strong majority in the National Assembly. Macron’s new party REM won about 31.5% of the vote in first round elections, putting them on course for a majority in the lower house according to polls. A second round of elections will be held next Sunday and if they confirm the first round result then Macron will have a strong mandate to push through controversial reforms in his first term of office. 
• The main event of the week will be the US Fed’s interest rate decision on Wednesday. A 25bps rate hike is widely expected, with the possibility that Janet Yellen will also discuss in more detail plans for reducing the size of the Fed’s balance sheet. The question looming however is whether assumptions about further rate hikes will prove accurate amidst increasingly mixed economic data, and as political clouds over the Trump White House continue to build. 

Click here to Download Full article