With the news consisting mainly of looming tariffs and movement toward a possible presidential impeachment, what was less apparent but something equally perilous was the European Union parliamentary elections taking place during the rise of populism not seen since WW2.
Over the weekend, the people of Europe took part in EU elections. The results fractured the status quo pushing more of the far-right toward an established position, marginally, while left-leaning Green and liberal parties made significant gains. Traditionalist and centrists suffered the most. The results leave the management of the world’s third largest economic group divided with little hope of forming consensus, at least in the short-term. “While, mathematically, the parliament’s centre-right, centre-left and liberal groups could try to work together without the Greens, the majority would be fragile, and highly vulnerable to internal splits.”^1
Investors depend on global stability and free markets. These elections posed a threat to the future of the Europe Union, putting at risk the most influential force on human rights, democracy, and free markets around the world. Without a Europe, countries like China would be the rule-writer for these values going forward.
Although we were lucky with the limited results of populist votes, the threat of nationalism influence remains real. The head of the Italian government, Matteo Salvini, is fighting for control over the gold in their own central bank. A government’s push to influence the powers and abilities of an independent central bank bring significant risks for market stability.
Europe’s economy remains weak. Greece and Italy share the bulk of debt, with their debt to GDP 182% and 131, respectively.^2 Inflation is almost non-existent, with a risk of future deflation if economic volume and employment don’t progress. The Euro reached a low against the US dollar, $1.11 EUR/USD, not seen since June 2017.
Investors can take shelter in the US dollar and other currencies that yield some interest over the Euro. Some money markets in the US currently yields 2.25% while EU cash continues to earn a negative yield in most cases. (A negative yield is where you pay the bank.) Local stocks and bonds will also see weakness simply due to the currency move. Defensive posturing in Euro investments is advised.
At Eureka Wealth Management, I keep my clients informed of the most significant economic trends and help asset allocate investments for the best possible results. I also help Americans overseas with their cash management, investments, and retirement planning. Call for a free initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
^1: FT 5/28/19: “Green win paves way for role to shape bloc’s agenda”