Theresa May Assumes Key Role as Britain PM – Theresa May became the second woman to lead Britain since Margaret Thatcher (1979-1990), and the world is watching as she assumes the extraordinarily tricky task of guiding Britain through their separation from the European Union (EU). May is a career politician and actually campaigned against the Brexit, but she appears committed to seeing it through based on the referendum result. Germany’s leader, Angela Merkel, has already stated that Britain should not expect an easy path forward in their relationship with the EU, and May finds herself in a difficult position.
June Jobs Report Surprises to the Upside – after a dismal May jobs report that arguably sent the Fed back into the bomb shelter, U.S. job growth surged in June as manufacturing employment increased. June saw nonfarm payrolls increase by +287,000 m/m, the largest gain since last October, which followed the bleak +11,000 m/m added in May. Meanwhile, the unemployment rate held at 4.9%. One would normally assume that a stronger jobs report might encourage the Fed to revisit their projected course for raising rates, but at this stage Fed forecasting feels like a feckless exercise. Even though the Fed’s dual mandate is employment and inflation, they also seem greatly influenced by global events, like the Brexit.
Maintaining Close Ties with Wall Street – Chancellor of the Exchequer, George Osborne, met with some of Wall Street’s biggest investors in New York this week to try and encourage them to keep close ties with the U.K. despite the Brexit. It seems extremely unlikely that Wall Street will want to alter its relationship with London following the Brexit, as neither party has any incentive to close-off ties in any way. In fact, once the Brexit has fully taken its course, there could be even more advantageous aspects to the relationship between New York and London, since London will no longer have to abide by regulations set forth in Brussels. Osborne will also visit Singapore and China later this month for the same end.
Bank of England Holds Key Rate at 0.5% – the market has seemingly been wrong in forecasting Britain policy moves lately—first the Brexit, and then this week in setting the expectation that the Bank of England would cut the benchmark rate by 25 basis points and perhaps also boost other stimulus measures, like bond buying programs. Neither outcome happened, perhaps as the central bank elected to hold off on using its stimulus measures until it is deemed essential. With the FTSE trading higher since the Brexit vote, the read is that the markets are perfectly content with the referendum outcome—so why should the central bank act? A 25 basis point cut would be the Bank of England’s first cut in seven years, and would represent an unprecedented low in the central bank’s 322-year history.
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