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Obama's Personal Intervention May Not Sway British Voters

Obama's Personal Intervention May Not Sway British Voters

Monday, 25 April 2016 08:44 AM Current | Bio | Archive

This week in the U.S., on Wednesday, the FOMC will probably announce the Fed will keep interest rates steady.

Markets also expect, at best, only one rate hike this year while a Reuters poll showed on Friday economists still kept their expectations unchanged with a rate hike in June and a second one by the end of this year, which is interesting.

Over the weekend the main political news and that is important for investors came out of Austria where the first round of the Presidential election resulted in literally a political “tsunami” that could have far reaching consequences for the EU as a whole.

The Freedom Party of Austria (In German: Freiheitliche Partei Österreichs, FPÖ) has won the first round of the Presidential election with 36.4 percent of the votes and has made its biggest score ever.

The second round of the Austrian Presidential elections will take place on May 22, where the “Greens” will be the other participant party.

It might be interesting to take notice of the Freedom party’s ideologies, which are: Right-wing populism; National conservatism; Anti-immigration; Anti-Islam and Euroskepticism.

Neither of the two main establishment parties’ candidates got into the second round.

Notwithstanding the Austrian Presidency is a largely ceremonial position and therefore is generally considered “directly” of little interest to markets, but yes, this time it could different as it confirms the ongoing political trend in Europe whereby anti-establishment and anti-EU parties do perform better than mainstream parties and that may raise some concerns with investors, and this for good reason.

In this context we'll have on Thursday, June 23, the UK EU referendum and for which the latest polls still don’t show a definitive trend one way or another.

We’ll see if President’s Obama personal intervention favoring the UK staying in the EU will have an impact on the British voters.

Then, which is also extremely important, next year in April and May we will have the French Presidential elections and given the anti-immigration stance of the Freedom Party of Austria, the political situation in Germany, and therefore the EU that could potentially be impacted by the demonstration of political populism and all this is what investors do or should care about. 

To put it simple, European and therefore Euro area political risks could rise further especially after the surprising first round of the Presidential election in Austria, which was not an event that was on international investors’ radar screens until now.

That said, for economics, today is relatively quiet.

The Ifo Business Climate Index for German industry and trade remained practically unchanged and came in at 106.6 points in April from 106.7 points in March.

Domestically the German economy is doing fine.

However, the stronger euro has mend that exports outside of the Euro area have suddenly lost pricing power. Produce Price inflation (PPI) for extra-Euro area sales fell in February for the first time since early 2014.

In theory, the Ifo is supposed to measure real economic activity, but there is a suspicion and companies are not very good at thinking in real terms and this may end up being a nominal reading, thus affected by the loss in pricing power.

In the U.S. there is the Dallas Fed Texas Manufacturing Outlook Survey.

As of late, local surveys have generally been fairly positive in their economic prognosis, but the weakening of the Philly Fed Manufacturing Business Outlook Survey may give some pause for thought.

Anyway, the survey concludes, “Despite reported weakness this month, firms’ forecasts for the next six months showed continued improvement, suggesting that the reported decline in growth is expected to be temporary.”

Conclusion, there is still no reason for getting pessimistic in the U.S.

Unfortunately, the same cannot be said for the Euro area, especially when we look at the political risks.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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We’ll see if President’s Obama personal intervention favoring the UK staying in the EU will have an impact on the British voters.
obama, europe, investors, economy
Monday, 25 April 2016 08:44 AM
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