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The Brexit Party claimed a comfortable victory in the UK’s European elections at the weekend, taking 29 seats as Labour and the Conservatives suffered embarrassing losses. The results reflected a vote against compromise, increasing the chances of a no-deal Brexit even though calls for a second referendum also grew louder. Sterling slipped yesterday but has steadied today, while UK markets have opened up relatively quietly after the Bank Holiday.
Other results across Europe were a more moderate reflection of Britain’s political turbulence. Centrist parties relinquished some power to liberals, populists and the far right. Angela Merkel’s party now holds as many seats as Nigel Farage’s, despite the latter’s being founded in January. It means that the mainstream conservative alliance in Brussels has been damaged.
Selected Eurozone sovereign bond yields are higher today given the added political uncertainty, particularly in Italy, where anti-establishment parties enjoyed similar success to those in the UK. Also, the country is potentially facing a EUR3bn fine for failing to rein in its debt.
Meanwhile, mixed consumer confidence signals have emerged from the continent. This month’s German GfK consumer sentiment indicator fell below expectations to the lowest reading since May 2017. In France, however, consumer confidence climbed to its highest mark in a year, partly due to President Macron’s tax cuts.
Equity indices broadly rose in Europe and Asia yesterday despite some extra geopolitical uncertainty. There have been further threats made by Donald Trump towards China, but officials in Beijing have played down the effect of any further tariffs. Beijing said that the economic impact would be “very limited” and that potential damage to Chinese manufacturing is manageable.
Finally, it seems hard to believe that Prime Minister Theresa May resigned only four days ago. Since then, during an already politically busy weekend, nine contenders have announced bids for the party leadership and more are expected to follow. After the unequivocal election results on Sunday, more credence may be given to those candidates willing to leave the EU without a deal.
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