UK elections results: What do they mean for investors?

What do the UK election results mean for global markets?

In this week’s episode of Market Week in Review, Senior Investment Strategist Paul Eitelman joins Todd LaFountaine, program director, advisor insights, to discuss the UK elections, this week’s ECB meeting, and next week’s meeting by the U.S. Federal Reserve (Fed).

Thursday’s UK general election delivered a hung parliament. Eitelman recalled how Prime Minister Theresa May called for the snap election in April. At the time, her conservative party had a majority in parliament. She was hoping to bolster her majority and make the Brexit negotiation process easier. According to Eitelman, that plan seems to have totally backfired, as May’s conservative party lost 12 seats and their ruling majority.

Eitelman called this “the worst-case outcome from this election process,” because it means more political uncertainty has been injected back into UK asset prices. It could also complicate the Brexit negotiations, and Prime Minister May could potentially be forced to resign as well. The greatest result for investors, said Eitelman, was the reaction of the British pound, which fell by from 1.5-2.0%. That was maybe the biggest impact.

Outside of the UK, the impact for investors has been nominal and Eitelman said that, for the most part, global markets have shrugged it off.

ECB meeting: Steady as she goes

The ECB met this week and no news was good news for the Eurozone. For the foreseeable future, it appears that the ECB will not be raising rates or tapering quantitative easing efforts. Accompanied with strong earnings growth, this combination appears to create a strong tailwind for European equities.

Under the cover of next week’s Fed meeting

At the end of the episode, Eitelman dissected the upcoming U.S. Fed meeting on June 14, where there is a wide expectation that interest rates will rise. Eitelman said the more interesting content will be under the surface of that decision and focused on two angles of that upcoming meeting:

  1. How the Fed will treat some of the recent economic news, including disappointing U.S. inflation numbers. These numbers may cause the Fed to become more cautious going forward.
  2. The Fed’s balance sheet, which is still over U.S.$4 trillion. Russell Investments strategists will be paying attention to comments which indicate plans to reduce this balance sheet going forward.

Watch the video now.