NATO and G7 brings radical changes!
Was this weekend’s G7 meeting really all about a change in the relationship between the EU and the U.S.?
The battle was climate change but the conflict was more basic. Whilst Donald Trump has been upfront and possibly a little too “in your face” about “America First” and his protectionist/nationalist agenda, Angela Merkel has now decided to react in a similar fashion.
Mrs Merkel has an election to win and although she has a double-digit lead over her nearest rival, she has clearly decided that now is the time to get on the front foot.
Emboldened by the election of a like-minded French President, Merkel has commenced the realignment of the EU. In a “them and us” statement she has said the time for relying on friendships with those outside the bloc, the time to “fight for our future ourselves, as Europeans, for our destiny” has arrived.
Powerful stuff! Born from a newly found confidence that she is now undisputed EU Leader. Forget Tusk. Forget Juncker, its Merkel who hold the reins!
Sterling in a funk!
The market is unsure how to react to opinion polls showing a decline in the lead held by the Conservatives. Is it real? What has caused such a seemingly catastrophic fall? Can we believe polls after Cameron, Brexit and Trump?
If the polls are to be believed the Conservative lead is around 5% depending on who you listen to. Talk of a 150-175 seat majority are very much on the back burner and more traditional issues are beginning to be discussed. Like, who will win in Scotland? It used to be Labour’s stronghold and a key to gaining power. Following 2015’s almost total meltdown the main beneficiary, the SNP is also struggling and the Conservatives are viewing a strong showing “north of the border” as a real possibility.
The pound, which rallied by 4% following the election announcement is gradually giving back that gain unable to find fresh factors to drive it on. It has found short term support at 1.2780 which has held following Friday’s fall from 1.2950 but it still looks susceptible to any negative news. The Euro is also struggling to make ground against a recovering dollar and is now unlikely to make a fresh attempt on the 1.1250 resistance without a deeper correction. Against the pound the Euro has corrected to 0.8680 as natural end of month sellers above 0.8700 capped its advance.
Draghi continues to sound note of caution.
Mario Draghi, the ECB President continues to be the voice of caution. In a speech yesterday to the European Parliament he noted that as inflation remains subdued (tell that to the Germans) considerable stimulus is still needed across the Eurozone. Any rate hike is still a long way in the future but Draghi’s words seemingly also place the withdrawal of even part of the Asset Purchase Scheme very much on the back burner.
Greece has also raised its head again. This is the now traditional forerunner to any upcoming bailout plan. At the risk of sounding like the “boy who cried wolf”, it seems that the EU and Greece reach the brink, peer over the precipice then step back every time a new tranche of bailout funds becomes due.
The next instalment is due in July and fears are growing that the Greeks may opt out if it cannot agree terms. This will raise the fear of a default and Grexit.
Italian political turmoil is nothing new so the threat of a September election and a hung Parliament is having limited effect of the single currency. Former Prime Minister Matteo Renzi suggested that it would be sensible to hold an election in September to coincide with Germany’s. The significance of holding both at the same time is lost on me but some alignment of elections would bring one step closer the Federalization that is the natural progression for the EU experiment.