Former Foreign Minister Boris Johnson is seen as the favourite to replace May, having already received nominations for a leadership bid from former Defense Secretary Gavin Williamson and Tory lawmaker Johnny Mercer. Whilst Remainers are cheering May’s exit, Boris Johnson played a key role in the initial referendum when campaigning for Leave and will surely make the prospect of Brexit more likely.
The leadership contest takes place in two phases. In stage one, Conservative MPs (members of parliament) consider whether they wish to put their own names forward. In stage two of the contest, the broader party membership is invited to vote on which of the two candidates they think would be the most suitable. The Conservative Party confirmed Friday that the entire contest would be completed by the end of July.
The world’s fifth-largest economy still faces an array of options when it comes to Brexit, including an orderly exit with a deal, a no-deal departure, a general election or a second referendum that could ultimately reverse the 2016 vote to leave the bloc.
Fears of a protracted trade battle between the US and China intensified this week. The US weighed blacklisting several Chinese video surveillance firms just days after banning China’s Huawei Technologies from importing US technology, though that ban has been deferred for 90 days and Trump hinted that despite national security concerns Huawei might be included in an eventual trade deal. Trump pointed to the G20 meeting as a potential turning point in resolving the conflict, saying there is a good possibility of a deal with China.
Elsewhere, Australia’s pro-business Liberal Party unexpectedly retained power after parliamentary elections while the party of Indian prime minister Narendra Modi won an absolute majority in India’s parliamentary elections. The party won 303 seats in the Lok Sabha, the lower house of India’s parliament, bettering the 282 seats they won in 2014.
The minutes of the early May meeting of the Federal Open Market Committee indicate that the US Federal Reserve was relatively unconcerned by the recent drop in inflation and slowdown in growth.
Stocks finished the week lower on concerns that U.S. trade tensions with China will be prolonged, and economic reports suggested global growth is showing signs of slowing. The Organization for Economic Co-operation and Development lowered the 2019 global growth outlook as escalating trade disputes hurt manufacturing and investment decisions. In its latest Economic Outlook, published Tuesday, the Paris-based think tank forecast 3.2 percent growth for 2019 versus 3.3 percent estimated in March. The global growth outlook for 2020 was retained at 3.4 percent.
Market Moves of the Week
South Africa’s rand firmed against a softer dollar on Friday, regaining some ground lost a day earlier when the South African Reserve Bank decided to leave the Repo rate (Repurchase Rate) unchanged at 6.75%. Three MPC members preferred to keep rates on hold, while two members suggested a cut of 25 basis points. During the press conference to announce the decision the Governor of the Reserve Bank highlighted that the Bank has revised down its growth forecast for 2019 from 1.3% to 1.0%, (at the start of 2019 the bank had forecast SA GDP to growth at 1.7% in 2019), and that they had also lowered their inflation trajectory.
Investor focus now turns to President Cyril Ramaphosa’s cabinet appointments after his inauguration on Saturday. Analysts say if Ramaphosa manages to trim a cabinet comprising more than 30 ministers and deputies, as he wants to do, that would be an early sign his fresh mandate has put him in a stronger position to overhaul South African politics.
Chart of the Week
Bondholders of Eskom Holdings SOC Ltd. appear to be taking South Africa’s President Cyril Ramaphosa at his word. Even after data showing that the state-owned power utility’s debt is approaching $35bn, yields on the company’s dollar bonds ticked lower this Wednesday as investors bet that the South African Government would step in to prevent any chance of a default.The global economy is expected to achieve moderate but fragile growth over the coming two years. Vulnerabilities stem from trade tensions, high policy uncertainty, risks in financial markets and a slowdown in China.
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