Jun 13 • Morning Roll Call • 1673 Views • Comments Off on MORNING ROLL CALL

Sterling continues its slump, as the UK’s hung parliament election result filters through to markets

In a relatively quiet day for fundamental economic calendar news, the UK’s inconclusive general election result was a major talking point, as was the rapid appreciation of the Canadian dollar. Sterling fell versus the majority of its peers, slumping to a seven month low versus the euro; EUR/GBP ending the day up approx. 1%, at circa 0.8854. GBP/USD closed the day out at approx. 1.2654, down circa 0.7%, this follows a 2% drop since the hung parliament result was finally delivered on Friday morning, leaving the UK in a current limbo, as the Tory party try to cobble together a fragile support agreement, with a small Northern Irish political party.

Sterling’s drop may be limited, given that the Tories will now struggle to enact what’s being termed a “hard Brexit”. The party (and most likely government), will now have to be for more accommodating to its European and Eurozone peers. Although not scheduled as economic calendar news, several organisations issued concerns on Monday, regarding the UK’s economy. The resolution foundation suggested the UK was totally unprepared for Brexit, in terms of lack of migrant workers. The IOD (institute of directors) and CBI, suggested their members were now extremely worried regarding a weak government and Brexit, whilst Visa suggested that the UK’s consumers had suddenly arrested their retail spending. Moreover two ratings’ agencies, Standard & Poor’s and Moody’s, suggested a downgrade in the UK’s credit rating was now imminent.

The Canadian dollar (the Loonie), rose sharply in Monday’s trading sessions, as a consequence of remarks made by the Bank of Canada’s Senior Deputy Governor, Carolyn Wilkins. She stated that the bank was now considering reducing its monetary policy stimulus. If they induce an interest rate increase, it would be the first rise by Canada’s central bank in seven years. USD/CAD slumped to its lowest level since April 18th, at circa 1.3325.

The U.S. dollar’s fall, as a consequence of the disappointing, hard and soft economic data recently published, continued on Monday. Its fall versus its peers, has so far been limited due to: expectations of an announcement of a rise in U.S. interest rates, when the FOMC meets this week, the UK’s current Brexit and election plight, and rumours of further accommodative monetary easing from the ECB. Markets, according to Fed fund futures, are now pricing in 96% certainty of a rate rise announcement on Wednesday.

Yen enjoyed a positive day versus it’s peers on Monday, its attraction as a safe haven currency, often materialises during times of uncertainty. USD/JPY closed the day out at circa 109.88, EUR/JPY ended the day at approx. 123.13, GBP/JPY at 139.28, yen enjoyed an average gain of circa 0.5% versus its main peers on the day. Yen has now appreciated circa 4% versus the U.S. Dollar, since mid May.

Looking at equity markets the DJIA closed down 0.17%, SPX down 0.10% and NASDAQ down 0.52%, as tech stocks sold off. In Europe equity markets slumped, STOXX 50 closed down 1.17%, DAX down 0.98%, CAC down 1.12% and the UK’s FTSE closed down 0.21%.

WTI oil rose by circa 0.5%, to close the day out at circa at $45.9 a barrel, after Saudi Arabia and Russia calmed investors by voicing commitments for production cuts, on behalf of OPEC and its partners, thereby potentially draining the renewed global glut.

Gold produced its longest losing streak in circa three months, as a consequence of analysts and investors anticipating that the FOMC will announce a rise in rates Wednesday, it’s second rise of 2017. Bullion slipped by 0.4% to reach $1,265, recording a fourth day of losses.

Economic calendar events for June 13th, all times quoted are London GMT time

08:30, currency impacted GBP. Consumer Price Index (YoY) (MAY). The forecast is for CPI to remain unchanged, at 2.7%.

08:30, currency impacted GBP. Retail Price Index Ex Mort Int.Payments (YoY) (MAY). The expectation is for RPI to remain unchanged, at 3.8%.

09:00, currency impacted EUR. German ZEW Survey (Economic Sentiment) (JUN). Sentiment is expected to rise to 21.8, from 20.6 in May.

10:00, currency impacted USD. NFIB Small Business Optimism (MAY). The reading is predicted to rise marginally to 105, from the 104.5 figure registered in April.

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