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Last week there were a number of notable political events around the developed world. Here is a quick round-up featuring Italian regional elections, scandal-plagued Canadian Prime Minister Justin Trudeau reopening Parliament and UK Chancellor of the Exchequer Rishi Sunak unveiling a new COVID fiscal response.
Italian Centre(-Left) Holds
Italy held seven regional elections and a constitutional referendum last week, which should reduce political uncertainty, in our view. In short, a right-wing coalition led by Matteo Salvini’s League party (which isn’t presently in Italy’s government) added two regions—Marche and Valle d’Aosta—giving it control over 15 of 20 regions.[i] But throughout the news publications we read regularly, the big question heading into elections was whether the League could take Tuscany as polls they cited seemed to indicate—potentially triggering a snap national election. Tuscany, historically, has been a stronghold of Italy’s centre-left Democratic Party (PD), which currently governs Italy with its coalition partner, Five Star Movement (M5S). It if lost Tuscany, some political commentators we follow believed PD leader Nicola Zingaretti may have been forced to step down, potentially fracturing the coalition and giving the League a shot at power. But in a 48.6% to 40.5% vote with strong turnout (notable, in our view, given the pandemic), the PD prevailed.[ii] We think this suggests a League comeback on the national stage isn’t imminent.
Whenever the next election comes—due at the latest by May 2023, according to Italy’s Constitution—voters will elect fewer members to parliament. A referendum to slash national parliamentary representatives by more than a third—an initiative M5S championed and which our research indicates had broad support across the political spectrum—passed in a landslide. By an overwhelming 70% to 30% majority, Italy voted to reduce its lower house membership from 630 to 400 and its upper house from 315 to 200, whilst allowing no more than 5 senators-for-life from presidential appointment (there are 6 currently).[iii] Italian leaders and political experts we follow have long cited the oversized legislature as one contributing factor to the country’s history of difficult government formation, fractured coalitions and general political instability. Together with a 2015 reform automatically awarding bonus seats to the party winning 40% of the national vote, reducing lower-house headcount should make it somewhat easier to form a stable government, in our view. However, we don’t think this significantly shifts the balance for the next contest at least—particularly with polls indicating popular support remains divided between M5S, PD and the League.
Canada’s Legislative Reset
After suspending Canada’s Parliament on 18 August, Trudeau reopened it 23 September with his Throne Speech, setting out a new legislative agenda for the country. With a COVID reset seemingly in mind, Trudeau pitched big-ticket initiatives including a national prescription drug plan and universal childcare. Whether they are necessary or not isn’t for us to say, but we think the ability of Trudeau’s Liberal minority government to enact them is likely limited. The first major hurdle for them to pass is a confidence vote, otherwise the government falls. The Liberals hold 154 of 338 House of Commons seats.[iv] Therefore, mathematically, they need support from at least one of three opposition parties—the Conservatives with 121 seats, the Bloc Québécois with 32 or the New Democratic Party (NDP) with 24.[v] Last Friday, NDP leader Jagmeet Singh agreed (rather tentatively, in our view) to lend support—so, we think Trudeau will likely avoid snap elections.[vi]
However, Singh’s support seems lukewarm to us. Based on our analysis, the NDP appears focused on maintaining emergency benefits for workers who lost income due to COVID closures and the temporary expansion of paid sick leave nationally. The NDP may support Trudeau’s other plans, but Singh hasn’t publically committed to anything else. Meanwhile, Trudeau is also under an ethics investigation—the third in his five-year-old government—over his family’s relationship with a charitable organisation.[vii] In our view, the cloud over the Cabinet, plus the fragile nature of Canadian minority governments—of the 13 prior to Trudeau’s in 2019, only 3 lasted more than a couple years—doesn’t suggest much legislative action will be forthcoming.[viii]
New UK Job Support Scheme
In the UK, Sunak unveiled an emergency unemployment support plan 24 September. One of the six-month support program’s main components is a partial replacement of the current furlough scheme, set to end in October, which paid up to 80% of non-working employees’ compensation.[ix] The new scheme provides for employees working at least a third of their normal hours—for hours not worked, the government and employer will each pay a half of the rest.[x] This could be less generous to workers though. The government’s per-employee subsidy will be capped at £700 per month, a big reduction from £2,200 under the current furlough scheme.[xi] That may help some UK employees get by, and we think it is a plus in that regard. But it isn’t critical for growth to continue, in our view.
Many commentators we follow think dwindling assistance will hobble growth, especially with renewed lockdown measures amid COVID flare-ups. But to us, this seems akin to the US’s CARES Act expiration—when additional $600-a-week unemployment benefits ended in July—followed by US President Donald Trump’s subsequent executive order authorising more limited payouts since (which, not all states have implemented). Critical coverage we reviewed then thought the sharp benefits’ reduction would doom the recovery, but growth continued.[xii] Similarly, we don’t think the UK economy is on life support, needing extra government spending to keep going. New COVID restrictions might slow growth, but the likely economic impact seems far smaller than many commentators estimate, in our view. Besides, the furlough scheme’s end should hardly be surprising, as it has been known since its 1 July phase-out announcement.[xiii] In our view, this is one less thing likely to knock markets.
[i] Source: Elezioni Regionali Voti, 21/9/2020.
[ii] Source: Regione Toscana, as of 21/9/2020.
[iii] Source: Ministero dell'Interno, as of 21/9/2020.
[iv] Source: Elections Canada, as of 29/9/2020.
[vi] “NDP Leader Jagmeet Singh Signals Party Intends to Support Throne Speech,” Staff, Global News, 25/9/2020.
[vii] “Ethics Watchdog Investigating Trudeau Over Choice of WE Charity to Run $900M Student Grant Program,” Peter Zimonjic, CBC, 3/7/2020.
[viii] “Minority Governments in Canada,” Stephen Azzi, D. Kwavnick and Eli Yarhi, The Canadian Encyclopedia, 22/10/2019.
[ix] “Winter Economy Plan,” the Rt Hon Rishi Sunak MP, HM Treasury, 24/9/2020.
[xii] Source: IHS Markit, as of 23/9/2020. Statement based on US Composite PMI, July 2020 – September 2020.
[xiii] “Changes to the Coronavirus Job Retention Scheme” Staff, HM Revenue & Customs, 1/7/2020.
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