Emmanuel Macron and Marine Le Pen went head-to-head in the second round of the French presidential election that took place in May. Macron’s win has eased concern over the impact of right-wing parties in Europe and the potential for a European Union collapse. Despite this election result it wasn’t enough to convincingly move European markets into positive territory for the June quarter. Macron attained 66.1 per cent of votes in the second round, a decisive victory, but as it was predicted by pollsters the market reaction was relatively muted.
Rating agencies downgrade Australian banks
Moody’s, the credit rating agency, lowered their rating on a number of Australian banks including the big four in June, citing increased economic risks due to the state of the property market and high-levels of household debt. The big four banks had their rating cut from Aa2 to Aa3 following a similar move by S&P Global Ratings in May. The housing market has received a lot of attention lately due to the risks associated with rising household debt and concerns over affordability, particularly in Sydney and Melbourne. While economic risks have increased, macro prudential actions should help unwind the imbalances and prevent a further build-up of risks.
UK general election backfires on Theresa May
The UK Prime Minister, Theresa May, called an early election on the 8 June in an attempt to gain a larger majority for her Conservative party in parliament. Prior to the election, the Conservatives held a majority of 17 seats in the House of Commons and it was in May’s best interest to attempt to increase the majority and strengthen her position in the Brexit negotiations. However, May wasn’t so fortunate. Her snap election backfired and the Conservative Party lost its majority in the House of Commons. May now finds herself forced to deal with the Northern Irish Democratic Unionist Party so she can form a minority government. Despite the shock result, financial markets reacted relatively calmly.
China re-enforces free trade
The price of iron ore surged following Keqiang’s commitment to support free trade during the World Economic Forum but it’s difficult to see a sustained rebound in the metal given China’s overcapacity in steel. Despite the short term surge, the price of iron ore fell over 35 per cent in the June quarter due to the persistent glut and high inventory levels at Chinese ports.