After last week’s elections, British politics is at a unique turning point and perhaps so is US policy, where in a tumultuous world; Great Britain has heretofore been a steadfast US ally. The final vote on Thursday, May 7, confounded many political observers on both sides of the pond.
Just a few days before the election, I predicted that Labour would win 270 seats and the Conservatives 275, and Labour would form a minority government. I begin with this confession as a warning that the wise should read what follows with scepticism (to say the least). I, along with many other “experts” got it wrong, very wrong.
Xi Jinping has recently published a book of maxims and instructions concerning ‘the comprehensive advancement of Socialist rule of law’. This is another strong political signal that the top leadership has committed itself to a process of legal reform. While it is tempting to dismiss the moves as mere ideological posturing, China’s intentions for rule of law are genuine.
The US dollar has begun the new week on firm footing, but the tone is more consolidative than trending. The dollar-bloc currencies, led by the New Zealand dollar, are particular softer despite China’s rate cut, which sometimes has been supportive for commodity-linked currencies. Emerging market currencies did not get much of a boost either.
1. After the US economy appears to have contracted (-0.5%/-0.8%) in the first quarter, how is the economy doing here in Q2 which is half over this week?
Last week we learned that after a simply dismal March labor report, April job growth bounced back above 200k. The May employment survey comes in the week ahead. Weekly initial jobless claims have fallen to new cyclical lows, as has the unemployment rate.
Three developments drove the dollar last week. The Eurozone bond market sell-off exhausted itself with the help of softer than expected German industrial orders and an outright decline in industrial output. The US jobs data bolstered arguments that what now looks like a contraction in Q1 is not a representative of the state of the economy. The unexpected Tory victory in the UK lifted sterling to its best level since the end of February.
The consensus for a 226k increase in April non-farm payrolls got as close as reasonably possible to the actual 223k increase. The nearly 40k downward revision to the March report (85k down from 126k of the initial estimate) tempered the positive news. However, the unemployment rate slipped to 5.4% from 5.5% despite the 0.1% increase in the participation rate. Average hourly earnings increase by a meager 0.1% on the month for a 2.3% year-over-year pace.
For many Americans, the value of the dollar in trade terms is a point of pride. Older generations remember a time when they could buy things for a fraction of what they cost today. Many view a strong dollar as a positive condition and something for which the nation should strive.
A decisive victory by the Conservative Party in Great Britain may portend greater cost cutting to social services and lower corporate taxes for the UK.
While the Conservatives gained a majority with over 327 seats, the Liberal Democrats suffered a fall from grace as they lost about 30 seats in the House of Parliament. The Labour Party, with over 230 seats, will be the second largest party and the opposition to the Conservatives, but they will also have to contend with the Scottish National Party, whose representation in the Parliament surged to at least 56 seats.
The polls proved wide of the mark. While we had detected a break toward the Tories over the past week, the results were stunning. The Tories appear to have won half the 650 seats. Most of the contested seats swung to the Conservatives. They picked up seats from the Lib-Dems and Labour.
