Things can get hung up in a snap

Things can get hung up in a snap.  That is probably what UK Prime Minister Theresa May is thinking.

Believing she was in a position of power, she called snap elections in the UK in an attempt to solidify her bargaining position going into Brexit negotiations.  Instead, she saw an 18%+ lead in the polls fall away as the more socialist Labour party led by Jeremy Corbyn surged up.  The result is that no party has a majority of seats (called a “hung” parliament) and she is left to cobble together a coalition government if she can.  Calls ring out for her to step down as Prime Minister though she is standing firm.  Regardless, the UK now sits in a more precarious position.  So far, the UK economy has not suffered a significant setback but do not forget that much of that comes from the export boost as the British pound declined.  The pound fell again on the election results, but this is not the path to economic prosperity Britons should be looking for.

Meanwhile the Eurozone revised up its Q1 GDP to the fastest rate in two years at 1.9% year-over-year (2.3% annualized which is the way the US quotes it).  Encouragingly, fixed capital investment is a significant contributor rising 6.0% year-over year along with the typical driver of domestic demand.  This week also, the European Central Bank (ECB) President Mario Draghi decided to take no action on the monetary front as expected but what we found interesting was the commentary.  Further rate cuts were taken off the table, though he still stays supportive of the asset purchases to extend their ongoing recovery.  So far, the European experience with extraordinary monetary policy has been like the US – without the occurrence of significant inflation.  With that path laid before them, the ECB will likely stay slow and steady in the lane.

Finally, politics in the US remain center stage as former FBI Director James Comey testified in a Senate hearing about whether President Trump sought to obstruct an investigation into his Administration’s contact with Russia.  Comey was steady in his testimony and under questioning as he delivered his perspective on the interactions while clearly unhappy with the chain of events.  Afterwards, critics and supporters alike claimed vindication from the words.  Clearly this is not an issue that is going away in a snap.