JUNE: General Election uncertainties

  • The FTSE 100 Index hit new highs during May and breached 7,500 points

  • US economic growth was stronger than originally calculated during Q1

  • Pro-EU centrist candidate Emmanuel Macron emerged victorious from the French Presidential election

The FTSE 100 Index hit new highs during May, breaching 7,500 points for the first time. Nevertheless, investor sentiment was rattled by mounting uncertainties over the possible outcome of June’s snap General Election, as predictions of a Conservative Party landslide were dented by reaction to controversial election pledges. Although Prime Minister Theresa May had cited Brexit as her principal reason for calling the election, it was domestic issues that took centre stage for the main political parties as their campaigns developed. Over May as a whole, the FTSE 100 Index rose by 4.4%.

In the US, investor sentiment was undermined by doubts over President Trump’s ability to deliver his promised tax cuts and regulatory reforms. Concerns were compounded by speculation surrounding the firing of FBI Director James Comey and US share prices dropped sharply in mid-May. The US economy expanded more strongly than initially calculated during the first quarter of 2017, stoking expectations that the Federal Reserve (Fed) policymakers could implement another interest-rate increase at their June meeting. The Dow Jones Industrial Average Index crept 0.3% higher during May.

Pro-EU centrist candidate Emmanuel Macron succeeded in his bid to win the French presidential election during May, beating far-right Eurosceptic candidate Marine Le Pen. The euro surged to its highest level against the US dollar for around six months in response. Over May as a whole, the Dax Index rose by 1.4% while the CAC 40 Index edged 0.3% higher. Greek officials finally reached a preliminary agreement with international creditors concerning a package of reforms that have to be in place before Greece can qualify for its next tranche of bailout cash. However, European finance ministers subsequently failed to reach the consensus needed to release the funds. Greek share prices were volatile during the month, but the Athens Composite Index surged by 8.9% over May as a whole.

Japan’s economy posted encouraging annualised growth of 2.2% during the first three months of 2017, driven by robust export activity and stronger private consumption. Japan’s labour market continued to gain traction in April: the jobs-to-applicants ratio strengthened during the month from 1.45 to 1.48, while the rate of unemployment remained at 2.8%. Household spending was disappointing during April, falling by 1.4% year on year, and dampened by low expenditure on education and transportation. During May, the Nikkei 225 Index rose by 2.4%.