UK voters deliver another election surprise

A ‘softer’ Brexit looks more likely as the Conservative Party loses power

Arnab DasConnery_Sean_se_150dpi_RGB

One year after the Brexit referendum and two years after the Scottish independence referendum, UK voters have surprised the country and the markets once again, with a dramatically different election outcome than suggested by almost every poll: Instead of an enlarged Conservative Party majority, which Prime Minister (PM) Theresa May wanted to see, the result of the June 8 general election is a “hung parliament” — no party controls a majority.

Thus, the election implies uncertainty and profound challenges for governing the UK in general and negotiating Brexit with the European Union (EU) in particular — and by extension for UK macro and market performance. That said, Invesco Fixed Income believes this latest political shock is more of an idiosyncratic story for the sterling currency and UK government bonds (gilts) than the sudden, but ultimately transitory, global financial shock triggered by the Brexit referendum a year ago.

Over the longer term, however, we believe the UK

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The UK triggers Brexit with Article 50. So what happens now?

With key European elections ahead, post-Brexit relationships remain unclear

Arnab DasConnery_Sean_se_150dpi_RGBThe Brexit process started today, when British Prime Minister Theresa May formally notified the European Union (EU) of the UK’s intention to withdraw from the EU under Article 50 of the Lisbon Treaty.

The invocation of Article 50 kicks off a scheduled two years of formal talks with the European Commission, the EU’s executive branch, on the terms of the UK’s exit. Talks will likely lead to a new UK-EU relationship or — in the event of a failure to strike a new deal in time — to the UK “crashing out” of the EU, with the potential for serious economic disruption to trade, investment and general relations.

The nine months since the June 2016 referendum on EU membership has been full of preliminaries, doubts, soul-searching and posturing on both sides of the English Channel. At Invesco Fixed Income, we expect a good deal of posturing to continue as actual negotiations get underway.

Key elections will shape the future of the UK-EU relationship

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Brexit brouhaha: A catalyst for growth-enhancing fiscal policy?

Governments could turn to fiscal stimulus rather than relying on central bank monetary policy

Dennis_Matt_sm_150dpi_RGBWhen contemplating the investment implications of Brexit, it’s worth considering the probability that it proves to be more significant than just the latest reason to become further concerned about the investment outlook. Clearly, this is the short-term perspective. In the longer term, however, it’s possible that Brexit could be seen as an inflection point in terms of policy strategy to address global economic travails. Specifically, fears of further populist rebellion could potentially lead governments to growth-enhancing fiscal policy instead of leaving the burden to central bank monetary policy, where the risk/reward arithmetic of zero and negative interest rate policies looks increasingly tenuous.

Dangerous political cocktail

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Negative quarter in Japan, China accompanied by signs of optimism

Yen rises post-Brexit, while China’s economy takes steps to become consumer-driven

Jason_Mark_sm_150dpi_RGBMarkets were down in Japan and China in the second quarter. While it appears Japan will continue to show weakness in the short term, there were several bright spots in China that give us cause for optimism.

Yen strengthens post-Brexit

The Invesco International and Global Growth team continues to be strongly underweight Japan. During the quarter, the Nikkei 225 Index was down over 7% when measured by the yen. However, if we consider a US dollar return, the Nikkei was actually up just over 1%.1

So why did the yen strengthen over 8% in the quarter?

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Brexit clouds the international growth lens

We examine the impact Brexit has had on the markets thus far

Dennis_Matt_sm_150dpi_RGBPrior to the Brexit decision on June 23, global economic, financial and geopolitical conditions were fragile and arguably fraught with no shortage of uncertainty. The outcome of Britain’s referendum vote was therefore anything but welcome, catching many by surprise. Since then:

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