Morning Update

Spanish Elections

No party has managed to maintain a clear majority in yesterday’s Spanish legislative elections, with the Popular Party and Socialist Party looking like they will also lack the ability to form a collation, respectively. The incumbent Spanish PM Pedro Sánchez’ decision to call a snap election, came after his party’s poor performance in the May local elections, which itself follows four years of the Socialist Party’s rule over Spain.

In Spain’s lower house, 176 seats are required for an outright majority. Presently, provisional results indicate tat the Popular Party has won 136 seats to the Socialist Party’s 122. Meanwhile the far-right Vox has taken 33 seats while the new left wing group Sumar party has held 31 seats. The current numbers indicate that Alberto Núñez Feijóo’s Popular Party will lack enough seats to form a coalition with the Vox party, leading to speculation over whether Sánchez will seek to form a left-leaning coalition. Of course, given Spain’s constitutional make-up, King Felipe VI of Spain will invite one of the party leaders to try to form a government first.

Given the lack of a clear winner, in the instance that no party is able to form a coalition, the Spanish electorate may be subject to further elections (as was the case in 2015/16 and 2019).

In early morning trading, Spain’s 10-year government bond yields rose marginally above 3.5%, as political uncertainty weighs on investor sentiment.

All eyes on Fed and ECB Interest Rate Decision

Wednesday afternoon will see the Federal reserve make their latest interest decision, where the general market consensus is expecting to see a 25bps rate hike, brining the benchmark rate to 5.5%. The last policy meeting’s minutes underlined how policy makers foresee further rate hikes down the line, as the central bank tries to bring inflation back down to its 2% target. Given that the Fed previously suggested that the decision to pause in June was unanimous, many economists were surprised to learn in the minutes that some policy markets in fact favoured a 25bps hike, highlighting that hawkish influence most likely remains. Earlier this month, data indicated that inflation was continuing to slow with headline CPI (Annualised) slowing to 3% against expectations of 3.1%. This showed the index falling 100bps from May’s print and marked the lowest headline inflation since March 2021. As such, while markets are still considering the likelihood of a further 0.25% rate hike this week, many view that the Fed may be approaching the end of their tightening cycle after.

The following day, Frankfurt will also be conducting their latest rate decision, with markets similarly forecasting a 25bps rate hike to bring their benchmark policy rate to 4.25%. Their policy meeting on Thursday follows 400 basis points of monetary tightening since July 2022. Inflation across the Eurozone presently stands at 5.5%, which though marking its lowest level since January 2021, continues to concern policy makers, not least because of core consumer prices rising 20bps between May and June.

Barbenheimer

With millions across the world heading to cinemas to watch Greta Gerwig’s Barbie and/or  Christopher Nolan’s Oppenheimer, the former has won the box office battle. According to Universal Pictures, Oppenheimer made a global total of $174.2m over the weekend while Barbie took in a total of $337m. In the UK, admissions at Vue cinemas on Friday were the highest Friday since the pandemic – a hopeful sign for the industry given a number of difficult years.