Overseas Headlines – June 09, 2017


May to form fragile government after UK election debacle, uncertainty over Brexit talks

British Prime Minister Theresa May will form a government supported by a small Northern Irish party after her Conservative Party lost its parliamentary majority in an election debacle days before talks on Britain’s EU departure are due to begin. A stony-faced May, speaking on the doorstep of her official Downing Street residence, said the government would provide certainty and lead Britain in talks with the European Union to secure a successful Brexit deal. May said she could rely in parliament on the support of her “friends” in Northern Ireland’s Democratic Unionist Party after her governing Conservatives failed to emerge as clear winners. Confident of securing a sweeping victory, May had called the snap election to strengthen her hand in the European Union divorce talks. But in one of the most sensational nights in British electoral history, a resurgent Labour Party denied her an outright win, throwing the country into political turmoil. EU leaders expressed fears that May’s shock loss of her majority would delay the Brexit talks, due to begin on June 19, and so raise the risk of negotiations failing.




China tightens grip on yuan to head off economic risks

In rapid fire moves that have stunned investors, Chinese authorities have begun tightening control over the yuan, lifting it sharply in a concerted effort to restore market confidence and forestall risks of capital outflows and slower growth, policy insiders say. Caught off-guard last month by a ratings downgrade by Moody’s Investors Service that gave fresh momentum to bearish yuan bets, traders said Beijing has reverted to its old play book – intervening in markets to bend them to its will. The key priority for authorities was maintaining market confidence ahead of a leadership transition later this year, policy insiders said, as growing debt risks, higher U.S. interest rates, capital outflows and possible trade tensions with the United States threatened to knock the economy. The policy insiders say last month’s introduction of a mysterious ‘counter-cyclical factor’ that increases the central bank’s influence over the yuan’s reference rate showed how serious authorities are about flushing out bearish bets and heading off any slide towards 7 yuan to the dollar. The move highlighted the challenge China faces between safeguarding economic and currency stability and speeding up capital market reforms – important steps in its quest to internationalise the yuan.




Infrastructure Boost Fades in U.S. Economic-Growth Forecasts

President Donald Trump is stepping up the fanfare around his $1 trillion infrastructure proposal, but the plan is fast becoming a non-factor in forecasts for U.S. economic growth. The administration is in the midst of an “infrastructure week” of big ideas spanning air traffic, waterways and roads, attempting to move forward on campaign promises to create millions of jobs and spur growth to rates not seen in recent years. The reality is, many concrete details are still missing on specific policies and programs, timelines, costs, and the savings or employment they’ll generate.  On top of that, other signature Trump initiatives including health care and tax reform are making little progress in Congress, plus distractions such as probes involving Russia are taking a toll. That’s all making it increasingly difficult for economists to expect any boost from infrastructure for at least a couple of years. “The big-bang infrastructure plan that people were maybe holding on to the night he won the election, this massive package that was going to rebuild roads and bridges and highways and put all these people to work, a lot of that is out the door,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. “I don’t think something like that is in the cards, definitely not this year and maybe not even ever. Part of that is because this is the year of investigations, not legislation.”