The media, both from the UK and around the world, is abuzz with updates ahead of the coronation of a new Monarch in Britain for the first time this century. It will also be the first time that a British coronation will be broadcast on color television, and live tweeted for the world. But how will this affect the markets?
For starters, the UK will have an extra holiday on Monday, which typically reduces trading volume. Despite Brexit, London is still the largest financial center in Europe. But, coincidentally, many countries in Europe will have public holidays to celebrate the end of WWII, though the stock markets are expected to be open. Trading in the European session, therefore, is expected to be lower in volume, as most major news and corporate reports have been postponed to Tuesday.
What could move the market?
Generally speaking, public events of this magnitude contribute to a general increase in positive sentiment. The supposition of traders being cold, calculating and methodological is belied by a history of the market reacting positively and negatively to emotionally charged public events. The Queen’s Jubilee, the previous event comparable to the upcoming coronation, saw general sentiment support the pound in the days after the event. British stocks also benefited from better risk appetite.
On the one hand, one less day of work is seen as weighing on the economy. On the other hand, the celebration is expected to boost spending on consumer goods and services, which could support a different sector of the economy. Higher spending and less production typically translate into inflationary pressure, however, so the BOE might not be in as much of a celebratory mood ahead of its policy decision meeting later in the week.
Getting a handle on the situation
The celebrations come in a bit of contrast to the economic situation in the UK, however. High inflation compounded by persistent strikes across multiple sectors have put the economy in a bind. The UK will report Q1 GDP next week, and it’s expected to also be on the verge of stagflation.
Local elections celebrated yesterday but still being counted suggests British citizens are unhappy with the current leadership of PM Rishi Sunak. Labour and the Greens have so far picked up a substantial number of council seats at the expense of the Conservatives. Counting is not far along enough to estimate a final result, but so far, results suggest the Tories could lose as much as a third of their seats. The council results are seen as the largest and potentially last electoral test for the government ahead of the next general election to be held some time in 2024.
The coronation could keep British attention away from the economic situation for a few days and support the pound. But there could be a return to reality when the data and interest rate decisions happen later in the week.
