Good morning,
May’s reshuffle haunted by ghosts of the past
The Conservative Party’s failure to secure a workable majority last week is, unsurprisingly, still all that markets are talking about. Theresa May still has a very long to-do list before the act of governing can really begin and markets will move on: nail down an agreement with the DUP, face her Tory lawmakers this afternoon, re-assemble her cabinet after yesterday’s reshuffle, write the Queen’s Speech and prepare for the formal beginning of Brexit negotiations (both due a week today). Every single item on this list becomes even trickier when you know that you’ll re-enter Commons with more enemies than allies.
As part of her reshuffle, May’s brought in some of the more popular characters of the Brexit campaign; even those with whom she’s had a chequered past. Prominent Brexiteers, namely Michael Gove and Andrea Leadsom, have been promoted to senior cabinet positions despite unceremoniously sacking the former, and seeing off a leadership bid from the latter all within the last twelve months.
What does this mean for Brexit?
Bringing two prominent, hardline Brexiteers to the fore just a week or so ahead of the beginning of negotiations with Brussels would suggest this minority government are steering toward a harder-form of Brexit, but this assumption may be misplaced. Through losing her majority and looking to join forces with a Northern Irish party, May could be forced to concede some of the harder positions of Brexit (blunt controls on borders, tariffs and trade) in order to please the more mixed House of Commons. To do otherwise could mean passing legislation in a hostile Parliament becomes even trickier.
Despite this, the pound’s showing relatively little signs of confidence. The Asian session’s seen muted price action and sterling’s still within reach of monthly lows against both the dollar and the euro.
Macron claims another victory
Politics across the channel couldn’t look more different. After securing the presidency, Emmanuel Macron now looks to gain a wide-reaching majority in parliament in the first wave of legislative elections, to the detriment of the socialist party and the Front National. With control of both the Presidency and the parliament, it appears all the groundwork has now been laid for the new President to commit to his manifesto pledges of liberalisation and modern reform. French business confidence polls are due this morning, which may give the first clues on corporate sentiment.
Elsewhere, the day ahead is relatively quiet with few data releases from the US, UK or Europe. The Bank of England’s most recent inflation report will be questioned by the Treasury Select Committee at 1000BST, but we expect the same soundbites to be repeated, as opposed to any new hints on monetary policy.
Have a great day.