Market Impact As Leaders Fumble And Tumble
Leaders come and go, but the markets always remain… right? Today, we’ll investigate the impact recent leader-switching has had on the markets. After that, we’ll delve into the top fundamental events to watch out for this week. Let’s go!
A tale of two PMs
What do Boris Johnson and Mario Draghi have in common? Unless you’ve been living under a rock for the last few weeks, you’ll probably know the answer. Both PMs have, of course, resigned this summer. But the initial impact on the markets couldn’t have been more different.
On 7 July UK PM, Boris Johnson, announced that he would be stepping down following insurmountable pressure from his cabinet and the parliamentary Conservative party.
The news was actually taken pretty well by the markets. The pound traded higher, up 0.6% against the US dollar and up 0.4% against the euro, recovering slightly from two-year lows hit earlier in the week.
The FTSE 100 also jumped 1.1% on hearing the news.
So, it was a pretty fond farewell for the blundering blonde, received very well by the markets.
Dragh-ing it out
Like BoJo, former Italy PM Mario Draghi didn’t exactly jump off the ship at the first opportunity. The PM finally resigned on 21 July, having had his resignation denied by the President just a few weeks before.
Unlike Boris, however, the markets weren’t quite as celebratory this time around. Mr. Draghi’s resignation and the uncertainty around the upcoming election hit Italian financial markets hard, with the FTSE MIB index of the top 40 Italian companies slumping by around 2%.
As this heavily impacted the Eurozone’s third-largest economy, the euro weakened against the dollar.
Why the difference?
While the UK currently faces many struggles — Brexit and a cost of living crisis — investors have relative confidence that with the next UK PM, things will bounce back. With a sizeable Conservative parliamentary majority and immediate plans announced to find a successor, all is going to plan and the status quo should be resumed in no time.
On the flip-side, Italy couldn’t be more in trouble if it tried. Unlike the UK, Draghi’s resignation came after his coalition fell apart and he couldn’t gain support to create another. Basically, no one wants a slice of his particular flavour of political pizza. There is no plan and that’s not good.
The markets hate uncertainty. Quite frankly, we’re not a big fan either. Right now, uncertainty is Italy’s middle name, and that’s a scary thought for such an important European economy.
Have your say!
Do you think other factors are at play here? What do you think is next for these two economies? Let us know by tweeting us at @_Contentworks.
Top trading events this week
We should see quite a quiet week in the markets, here are the hottest events for your trading calendar.
● USD — ISM Manufacturing PMI (JUL)
● AUD — RBA Interest Rate Decision
● AUD — Employment Change QoQ (Q2); Unemployment Rate (Q2)
● GBP — S&P Global/CIPS UK Services PMI Final (JUL); ISM Non-Manufacturing PMI (JUL)
● GBP — BoE Interest Rate Decision
● CAD — Balance of Trade (JUN)
● AUD — RBA Statement on Monetary Policy
● CAD — Employment Change (JUL); Unemployment Rate (JUL)
● USD — Non-Farm Payrolls (JUL); Unemployment Rate (JUL)
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The Contentworks team