“UK – Snap Election backfires…..”

UK – Snap Election backfires

The UK has suffered its third attack in three months when on Saturday night there was a terror attack in central London which was claimed by Islamic State. The election campaign was temporarily halted, but resumed after less than a day.  Meanwhile, in May the UK services activity expanded less than economists expected.  The HIS Markit’s Purchasing Managers Index fell to 53.8 from 55.8 in April, which is the weakest since February.  According to Markit, new orders weakened because of the effect on consumers from rising prices and decisions which are delayed ahead of the general election on 8^th June.

On Thursday the general election was held in the UK leaving Theresa May battling to survive as Prime Minister of Britain after calling for a snap election to increase her parliamentary majority and strengthen her hand for the Brexit talks that are due to begin in 10 days. The election resulted in a so-called hung Parliament where no one party commands a majority.

Spain

Banco Santander has stepped in to take over Banco Popular Espanol SA, tapping shareholders for about 7 billion euros before the bank collapsed due to a lot of bad property loans. The situation of the bank had become urgent in recent weeks and the Chairman of the bank Emilio Saracho struggled to find a buyer whilst selling the shares was complicated due to a stock slump.  Furthermore, according to the ECB there was a “significant deterioration of the bank’s liquidity situation”.  The forced sale is the first major action by the Brussels-based Single Resolution Board which was set up in January 2015 dealing with euro-area bank failures.  The aim of the Single Resolution Board is to deal with euro-area bank failures to wind them down with minimum impact on taxpayers and financial stability.

European Central Bank

The European Central Bank made reference to easing policy possibly cutting down interest rates, an unexpectedly hawkish move as the euro zone growth accelerates. The ECB deposit rate remains at -0.4 percent while monthly asset purchases will continue to total 60 billion euros a month and to run until at least December.

United States  

An important testimony which was the most widely anticipated in years was that of Former FBI Director James Comey in a Senate panel. The hearing focused on the pressure for loyalty by Trump on Comey, to drop an investigation on Michael Flynn who was Trump’s former national security advisor regarding any ties to Russia and the meddling in the 2016 presidential election and also to declare publicly that Trump was not being investigated.  The testimony puts pressure on Trump whose presidency has been overshadowed by allegations that Russia helped him win the election.  The White House and Russia deny that any collusion has occurred.

China – the increased demand for Gold

Chinese are looking for safe haven products to protect their wealth from currency risks, slow property market and volatile stocks as the government is focusing on reducing the leverage in the financial system. Gold is enjoying the increase in demand as other means of investing.  According to the China Gold Association, local consumption increased 15 percent in the first quarter while the sales of gold bars for investment climbed more than 60 percent.  Global investors are also increasing their holdings with the assets in the SPDR Gold Trust, which is the world’s largest exchange traded fund climbing by more than 6 percent since the end of January to 851 tons as at 5 June.

Middle East

Saudi Arabia, Bahrain, United Arab Emirates and Egypt made a move to isolate Qatar as they were furious with the tolerant attitude towards Iran and Islamist groups such as the Muslim Brotherhood. The move came soon after US president Donald Trump visited the region and joined Saudi Arabia to hard criticize Iran for sponsoring terrorism from Syria to Yemen. A report by the state run Qatar News Agency carried comments by Qatar Ruler Sheikh Tamim Bin Hamad Al Thani criticizing mounting anti-Iran sentiment. These comments were deleted by Qatari officials blaming hackers.  Furthermore, criticism by Saudi and UAE media outlets increased after the same Sheikh Tamim phoned the President of Iran Hassan Rouhani over the weekend opposing criticism by Saudi.  Qatar’s QE index for stocks tumbled 7.3 percent, the most since 2009, while Qatar’s credit risk as measured by credit default swaps increased the most globally.  Saudi Ports Authority banned vessels flying the Qatari flag or owned by Qatari companies or individuals whilst vessels are banned from offloading Qatari cargo in Saudi ports.  According to Saudi Press Agency, Saudi Arabia banned all planes from Qatar from landing in the Kingdom and will bar them from its airspace.

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