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May faces crucial week

Brexit, Queen’s Speech to challenge Leadership

In the U.K., the weekend press would have made dismal reading for Prime Minister Theresa May.

 

A challenge to her leadership is becoming more likely every day with the vote on the Queen’s Speech in which she outlines her Government’s legislative programme for the coming year set to be the catalyst.

 

The Conservative Party will gauge closely the mood of the House of Commons and if there is the likelihood that the Government will be defeated a vote of no confidence in their leader will follow close behind.

 

Brexit talks start officially today at 11am in Brussels. Both David Davies and Michel Barnier will set out the hopes and desires as attend a joint press conference at the end of the day. The “no deal better than a bad deal” bluster is set to be cast aside in favour of a more conciliatory approach. Finance Minister Philip Hammond commented over the weekend that no deal would be very bad for the U.K.

 

With even the Queen acknowledging the “sombre mood” in the country and new leader for the Conservative Party, a General Election and the possibility of a change in Government is becoming ever more likely.

 

U.K. economy at a crossroads

Liquidity has been very high in the FX market over the past few weeks. Markedly, Sterling, in particular, hasn’t suffered a flash crash despite serious upheaval both politically and economically.

 

BoE Governor Mark Carney reiterated his faith in the resilience of the U.K. economy on Friday following the surprise 5-3 vote against a rate hike at the MPC meeting.

 

Overall, the MPC are more optimistic than most observers about the prospects for the U.K. economy. Whether that is putting a brave face of a tricky situation or not, the fact remains that a hike in interest rates could have a mortal effect on economic growth which is faltering despite the boost it is getting from loose monetary policy.

 

Real wages are the main concern now. With inflation at 2.9% and wages growth 1.7% at the consumer, the mainstay of recent economic activity is earning less in real terms. Retail sales data for May released last week showed a marked slowdown in activity with month on month ex-fuel sales falling by 1.6% against an expectation of a small rise following April’s upwardly revised 2.2% growth.

 

Thin data week to be driven by politics.

With the U.K. in turmoil providing a complete contrast to the serene atmosphere in the E.U., downside momentum for the pound is likely to recommence.

 

In the U.S. President Trump confirmed that he is under investigation over “Russiagate”. However similar to a good poker player he is not giving away “how good his hand is”.

 

He certainly seems not unduly perturbed by the continued impeachment concerns but now needs to get on with getting fiscal changes and stimulus plans passed. Janet Yellen, for one, needs to see some progress if her commitment to higher rates is not to be premature.

 

In the E.U. Emmanuel Macron followed up his stellar performance in the Presidential Election by helping his party to a solid performance in the Parliamentary Election. His “Republique En Marche” Party and its allies gained 351 of the 577 seats contested falling short of the prediction of as high at 470 seats. Nevertheless, Macron now has a clear mandate for his centrist, pro EU policies and is the “poster boy” for the EU’s post-Brexit image.

 

 

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A Special Relationship

U.K. and U.S. facing economic woes.

Why did the FOMC hike rates yesterday? The latest data shows that inflation is at its lowest for two years and the rate of increase has fallen for four consecutive months. Growth is hardly stellar and the consumer is not likely to over borrow or overspend.

 

Using interest rates to dampen the stock market? Why not? Cheap money continues to pour into equities with the Dow rising almost exponentially.

 

Are we really expecting President Trump and his fiscal reform and stimulus packages to save the day? Good luck with that. Trump is fast turning into captain calamity refusing to learn that business and politics are two very different worlds that do not mix.

 

The dollar, which initially reacted positively to an expansionist President has quickly fallen back to levels not seen since before Trumps stunning victory. The dollar index is bumping along the bottom just managing to get above 97.00.

 

Trump labelled several countries (including Germany) as currency manipulators but for many years the U.S. has operated a “strong dollar policy”. The measures taken by the FOMC to pull the economy out of recession have been successful and the U.S. is now waiting for the developed world to catch up. It may be that another downturn occurs before that can happen or the simple fact is that we are facing a new order in the post-financial crisis world.

 

U.K. needs strong leadership in actions not words.

There have been a few Prime Ministers throughout the twentieth century with the strength to overcome the calamity that is facing the U.K. Their politics were often controversial but their drive, patriotism and pure bloody-mindedness got them through. Baldwin, Attlee, Churchill, Thatcher. Names that have now been consigned to the history books. The new millennium has been characterized by the burning desire to be elected more than standing for what is right or at least what is considered right, determined by a point of view.

 

We now have May and Corbyn presiding over “playground squabbles” and making ridiculous claims. May believes she is the person to lead Brexit despite not galvanizing the country behind her “Hard Brexit” rallying call. Corbyn says he is ready to form a Government despite being fifty-five seats behind the Conservatives, let alone a majority.

 

Politics is now a cult of personality! Blair started it. Watch a Youtube video of his performance around the time of the tragedy of Princess Diana’s death. Pure theatrics. Churchill would have taken matters in hand, Thatcher would have been strong, instead we had platitudes from Blair.

 

The U.K. faces a difficult few years now and it is almost necessary to have a Government of national unity to pull it all together. But why would politicians allow the national good to come ahead of their own personal aspirations.

 

Sterling on the brink

Hope of a “softer” Brexit. The pound is pinning its hopes on the result of last week’s General Election to bring about a Brexit deal that can see the U.K. remain in the single market by softening the stance over free movement. The fate of EU citizens currently residing in the country is paramount.

 

The market is prepared to give the Conservatives a little more time to “get their ducks in order” even if Messrs Juncker and Tusk are not. The pressure for Brexit talks to begin is mounting. There is no question that volatility is about to increase even more for the pound. There will be plenty of soundbites to excite traders given the inability of EU officials to keep anything to themselves.

 

Sterling has remained reasonably well grounded against a dollar that is softer but now against the Euro, there is a real possibility of parity in the long term!

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May comes out swinging

“I got us into this mess and I will get us out”

Prime Minister Theresa attempted her best Margaret Thatcher impression last evening to rally support for the continued occupation of 10 Downing Street.

 

It is unlikely she was able to summon up the same level of fear that the “Iron Lady” did in backbench MP’s but she will have gone some way to convincing them that she can form a Government.

 

In the world of political intrigue, every compliment is questioned, every vote of confidence subject to a recount and the hand that pats you on the back could just as easily contain a dagger! Mrs May remains under pressure but having survived the “first weekend” her position becomes a little less untenable. The tradition that General Elections are held on Thursdays has meant that the weekend newspapers tend to be prompted to “break” stories of gossip and intrigue.

 

It was no different this week with rumours of a potential “coup” from Foreign Secretary Boris Johnson. So far this has come to nothing and Johnson has been solid in his support for the PM.

 

Sterling bearing up well as crisis unfolds.

The pound has fared rather better than most would have anticipated given its performance following shocks in the recent past.

 

It rallied by a little more than 4% following the announcement of the election and has not, so far, “given back” the entirety of that move.

 

Sterling had been suffering a little prior to the election from a fear that a strong majority for the Government would lead to a “Hard Brexit” and the “no deal is a good deal” refrain becoming a bargaining tool.

 

Despite the turmoil caused by Hung Parliament, an economic benefit could be construed from a Government forced to accept a slightly “softer” Brexit. The “four freedoms”; goods, capital, labour and services, are now set to be offered as an all or nothing package by Michel Barnier. A tweak here or there and an acceptable compromise could be reached.

 

Free movement of Labour is likely to be limited to those EU nationals already residing in the U.K. Capital and Services are likely to provide some weakening of the position of the City of London although that is a decision that will be “market driven”. Goods will provide a sticking point since it is the “Jewel in the Crown” of the EU and won’t be handed to a non-member easily. Just ask the Swiss!

 

Inflation and Interest Rates bring the market back to reality.

Today sees the release of inflation data for the U.K. Mays month on month data is likely to be unchanged as seasonal pressures ease leading to an unchanged YoY read.

 

Producer prices, the cost of good at the factory gate will have eased considerably as the effect of the fall in Sterling following the Brexit referendum becomes far less significant. A fall from 16.6% or around 13.5% is possible.

 

MPC and FOMC meetings take place this week with different influences and pressures likely to provide vastly differing paths for interest rates. A hike is still the core expectation for the FOMC, whereas Mark Carney is likely to continue to canvas for a steady as she goes policy.

 

Janet Yellen risks losing at least part of her credibility by stating that the FOMC will be most influenced by economic data then hiking rates despite a poor employment report. Inflation is neither particularly important nor a major influence on FOMC decision making. This is just as well as the most recent report pointed to a benign outlook.

 

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Every Loser Wins

Divisions in U.K. set to dominate.

There is no future for a minority Government in the U.K. Goodwill is necessary and that is in very short supply with a great deal of antipathy between the main players.

 

The “alliance” between the Conservatives and the Democratic Unionists (DUP) is nothing new. The DUP tends to vote with the Tories in parliament having common ground on most issues.

 

Uncertainty is set to remain the key driver of FX markets for a while yet as Theresa May sets about forming a Government, passing a Queen’s speech and Budget. That is to say nothing of Brexit. In an ever so perfectly timed yet totally gloating manner, Angela Merkel declared that the EU is ready for negotiations to begin and saw no reason for a delay.

 

Sterling has performed reasonably well. Analysts have been “picking at the bones” of its fall then marginal recovery.

 

The most common reason given is the possibility of the U.K. accepting a “softer” Brexit where concessions to guarantee access to the single market are given leading to a smoother path. That is going to bring with it a major financial consideration which has been strongly denied so far.

 

May facing harsh criticism

The Sunday newspapers in the U.K. were almost uniformly critical of the campaign fought by the Conservatives and the blame has been laid firmly at the door of the Prime Minister.

 

She has moved quickly (probably under instruction) to remove her two most senior advisors. Her new cabinet reflects a determination to continue in her job but there is significant doubt if she will be allowed to fight another election.

 

Can May survive? It is not likely but she is not even the biggest loser in this election. Neither is Corbyn the biggest winner! Those two titles reside “north of the border”. The Scottish nationalists lost seats and their independence mantra is shot to pieces. Nicola Sturgeon their leader is wounded. Mortally? Who knows?

 

On the contrary, the leader of the Conservative Party in Scotland, Ruth Davidson is riding a wave of popularity that must be the envy of her Westminster colleagues.

 

 

Senior Conservatives have recognized the need for consolidation. They are prepared to accept the election result as a wakeup call. Despite the performance of the Labour Party, its leader Jeremy Corbyn is seen as an unlikely Prime Minister.

But it’s not all politics

This week we have important data and interest rate decisions on both sides of the Atlantic.

 

In the U.K. Mark Carney, the BoE Governor faces a Parliamentary committee to explain why inflation is nearing 3% when there is a target of 2%. He then will chair an MPC meeting which should be a reasonably simple affair. No change to monetary policy is possible in the current political climate. Inflation data is also released and an unchanged read of 2.7% is the best that can be expected.

 

Across the Atlantic, Janet Yellen chairs the FOMC meeting. It is ironic that President Trump has been calling for a delay in changes in Monetary Policy yet his only slightly damaged reputation following Michael Comey’s testimony last week means that conditions are right for a hike.

 

Currencies doing what currencies do.

Bid and offers, support and resistance, commercial buyers commercial sellers. Despite the market fearing a “chicken licken” scenario where the sky is falling, traders have, surprisingly, preferred to take a more considered view.

 

Sterling fell on the release of the exit poll but quickly made a low then has recovered a little. The Euro has recovered from a fall following Trump’s “escape” and is now back above 1.1200. Macron’s performance in the French Parliamentary Election has helped.

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OK, So Now what?

A new political landscape emerges.

It was at least refreshing to see Labour cast off its “New Labour” cloak and return to traditional values. Grudging kudos goes to Jeremy Corbyn for running a united campaign.

 

But what does it mean? In a word turmoil! Even if Brexit negotiations weren’t starting in less than two weeks, the effect on the country will be difficult to manage. Brexit just throws a spanner, albeit a large one, in the works.

 

Sterling is set to fall, inflation will rise further, the slowdown will get worse and politically, uncertainty will reign.

 

It may be time for a Brexit negotiation team to be created that doesn’t necessarily comply with Party Political sympathies. The E.U. has a chief negotiator in place. Whoever is Prime Minister after the dust has settled should seriously consider this as a unifying gesture. There are plenty of good negotiators in Britain and since all parties basically want the same thing, give a negotiating team a mandate and let them get on with the job. It has worked with the Bank of England, why not Brexit?

 

Draghi opens the door, just a little

So, Mario Draghi sees the Eurozone economy as neutral now. The removal of the bias towards a negative outlook should be viewed as something of a victory for those who are concerned that the ECB is falling behind the curve.

 

The facts, Eurozone wide actually support Sr. Draghi. Growth is a little better than patchy but could be reaching a plateau. Inflation is benign and even Germany has seen price pressures tail off.

 

At his press conference, Sr. Draghi went as far as to say the outlook for inflation remained weak for years to come. Maybe as a show of solidarity he should lend his crystal ball to Mark Carney.

 

Trump to survive Comey mauling.

It fell short of a smoking gun but was a unique commentary on the naivety even Presidents can display.

 

James Comey, the former FBI Director testified under oath to the Senate Intelligence Committee yesterday. He said that the reasons cited for his removal from office were spurious calling them lies, lies and more lies. When asked for his opinion on why he was removed from office Comey commented that he felt it was to interrupt or disrupt the FBI investigation into Russian influence on the election.

 

It is traditional but not law that the President doesn’t hold one on one meetings with senior members of law-enforcement. It is being said by Trump advisors that the President may not have necessarily known that, but Comey certainly should have. Semantics! A typical political storm in a teacup.

 

Currencies react to the perfect storm

Sterling fell by 2% before recovering a little as the election results turned from speculation into fact. 1.3000 now looks a mighty long way away but the market may just see a Parliament where there is no clear leading party as a good thing.

The problem is and always will be, getting business done in a forum where scoring points is almost as important as the matter at hand.

 

Liquidity remained solid overnight with plenty of bids and offers allowing an orderly reaction to the shock of the election result.

 

The Euro has gained ground against the weaker pound but is treading water as the negativity surrounding the dollar following James Comey’s testimony balances the likelihood that a rate hike in the Eurozone could be more than a year away.

 

The dollar index had a brief relief rally as it became clear that Trump isn’t about to be pushed, and certainly won’t jump, out of office. It the settled back a little but remains supported close to 96.80/97.00

 

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Finally!

Election day arrives.

Harold Wilson, a Labour Prime Minister in the sixties once commented that “a week is a long time in politics”. Multiplied by seven we seem to have had an interminable wait for today to arrive.

 

Despite interest driven by polls, the campaign has been turgid in both content and delivery. The main political parties have clashed over the usual issues, accusations have been made and countered, the gaffe count has been surprisingly low but finally polling day has arrived.

 

The pound has held onto the majority of the 4% gain it made when the election was called. The 1.3000 level remains tantalizingly close. Sterling has closed higher on eight of the last ten trading days but today will depend upon liquidity. The 1.2900 level has now been successfully breach as the pound closed at 1.2958

 

The massive move seen on the day of the Brexit referendum result was due, to a significant extent, to liquidity drying up almost completely. Should the same thing happen today and the result be in line with predictions early in the campaign a similar outcome could be seen albeit in the reverse direction.

 

Only monetary policy holding Euro back.

Over the course of the election campaign the pound has weakened by 5% against a resurgent Euro.

 

The common currency has benefitted from several factors during Q2.

 

Today the ECB meets to discuss monetary policy against a backdrop of almost total positivity within the Eurozone. Given the diversity of the political, social and economic background of its members it would be remarkable if every corner of the region were performing in an identical manner.

 

The French Presidential Election, won by the Centrist Emmanuel Macron, seems to have been the catalyst for the start of a more settled period. Confidence has returned, the economy is starting to grow and inflation is controlled.

 

Inflation most concerns Mario Draghi. He sees growth at 1.7% YoY as acceptable but his Central Bankers psyche cannot compute growth without inflation. This is leading to concern over the viability of the economy.

 

The paradigm that is the Eurozone must be allowed to grow organically. It is, to all intents and purposes, an experiment that needs time to “bed in”.

 

The Euro is established above 1.2900 against the dollar and is now looking to test the 1.3020 level not seen since last August.

 

Comey set to testify.

The ability of Donald Trump to deliver on his election promises will be severely tested today as former FBI Director James Comey testifies before the Senate Intelligence Committee. If he confirms that he was pressured by Trump to drop his investigation of, what has become known as, Russiagate, then Pandora’s box will be well and truly opened.

 

For Trump himself, it was business as usual yesterday as he nominated Comey’s successor.

 

The dollar index, which measures the dollars overall performance, has fallen close to 5% since February as this crisis has grown. It closed yesterday at 96.72 having been above 100 as recently as April 21.

 

Following last week’s weaker than expected employment report, any further delay in trumps fiscal plans a rate hike next week will be called into question even more.

 

The Fed is already facing questions over whether it has allowed sufficient time of this year’s two hikes to “feed through” so it will need to be certain a third hike is necessary before pulling the trigger next Wednesday.

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Super Thursday? Oh No!

Trump, May & Draghi hold keys to market expectation.

Halloween, Baby showers and now Super Thursday. It is clear to see why the U.K. is happy to look west towards our transatlantic cousins rather than towards Europe where scepticism has always been mutual.

 

My personal feelings towards Halloween taking over from bonfire night and baby showers; where the notion of giving a gift to the new parent(s) has been made “de rigueur”, is a conversation for another day/blog.

 

However, we could never avoid Super Thursday, an electoral term straight from the U.S.

 

Tomorrow is, indeed, Super Thursday.

 

Politics, intrigue and monetary policy; a holy trinity of clarity or a witch’s coven of uncertainty?

 

Tomorrow a new Government will be chosen in the U.K. to not only drive the U.K. forward for the next five years but to negotiate Brexit. Hard or soft? Like a boiled egg, it is a matter of personal preference. The reaction of Sterling to first the referendum result and then the calling of the election was violent and, depending on liquidity, it may be time to “strap on the tin hat” tomorrow.

 

Currencies enter the eye of the storm

Expectation over tomorrow’s events have created a calm that has pervaded traders as advance positioning is now complete and the market becomes reactive.

 

First the ECB will announce no change to interest rates or the Asset Purchase Scheme. It would be a major shock were there to be any change to official rates. The interest will be in ECB President Mario Draghi’s press conference. Will he give advance guidance on the economy, the conditions needed for a rate hike and the withdrawal of quantitative easing (QE)

 

QE was a dirty word and the portent of disaster when first mooted by the Federal Reserve but now it seems to have proven highly addictive!

 

The Euro has been trading at six month highs as befits the currency of a region where there is political harmony (to a certain extent) and a growing economy (overall). 1.1280 is proving a tough hurdle but tomorrow could just provide the catalyst.

 

The dollar is suffering from heightened risk aversion as the JPY makes a two month high at 109.25.

 

James Comey’s testimony to the Senate Intelligence Committee will be held in private but the reaction is sure to take centre stage. Impeachment for Donald Trump is a real possibility but, given his nature, resignation is not an option.

 

Terrorism punctuates U.K. campaign.

Accusations over the leader of the opposition’s links to terror groups have been countered by counter-accusations regarding the drop in police numbers as the main political parties in the U.K. display their security credentials.

 

Two terror attacks that have punctuated the campaign. The first in Manchester, followed last weekend by the London attacks shows the needs for tough, well thought out and well manned anti-terror legislation. Quite apart from Brexit, the population will need to decide who is most capable of delivering.

 

Sterling has been best described as mixed over the past few days.  Reacting to the fortunes of the dollar and gradually weakening against a buoyant common currency. The Euro has moved from 0.8312 a couple of days before the election was called to a high of 0.8770 and dependent upon tomorrow could be ripe for a correction. Over the same period, Sterling has rallied from 1.2500 to a high of 1.3020 before settling into a relatively narrow range between 1.2750 and 1.2950.

 

Tomorrow there will be a “news blackout” while polling is taking place so Sterling will genuinely be becalmed by the “eye of the storm”. It is certain that at 10.00pm BST when polls close and the first exit polls are released that the fun will begin.

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Getting ready to Rumble

Election becoming ever more significant

It is very unlikely that when she decided, against her better judgement, to call a snap election, that Theresa May even considered how close the race would, apparently, become.

 

It is easy to take opinion poll results with a “pinch of salt” given Cameron, Brexit and Trump but it is the extremely wide margins of victory currently being predicted for the Conservative Party that should concern pollsters.

 

Yesterday two opinion polls were released. One gave the Government a 1% lead, the other 11%! In the modern era where every “Tom, Dick and Harry” can spout his own opinion as news on social media, the task of sorting fact from fiction is becoming harder and harder!

 

The pound has, predictably, reacted well to the 11% result. It is possibly quite a good barometer of where the market sees the more likely result that it pretty much disregarded the 1% poll.

 

Against a buoyant Euro, the pound is holding its own. The 0.8720 level is providing support for the common currency as the Eurozone basks in the glow of political stability and an improving economy.

 

ECB meeting to set economic tone

The publicity machine that Messrs Juncker and Tusk drive to tell everyone how wonderful life in the EU is will need to be in full force later this week as Mario Draghi continues his refusal to agree the sugar-coated version of events.

 

Yes, the economy is growing, inflation is rising (slowly) and consumer confidence is starting to improve but since Draghi is responsible for the entire region’s economic health he must consider the “lowest common denominator”. It is employment that continues to be his major concern. It is close to 10% Eurozone-wide with Mediterranean countries still in mid-teens. Youth unemployment is above 30% in many countries and it is this lack of new jobs coming through that concerns Draghi.

 

The Asset Purchase Scheme, created rather unwillingly, was put in place to stimulate the economy and it has been successful but, as with both the FOMC and MPC, there is a reluctance to withdraw support albeit for varying reasons.

 

The Euro is well entrenched above 1.2900 now versus a dollar slowly succumbing to its own difficulties but an assault on 1.3000 may need a correction before fresh buyers can be attracted to the single currency. It is a similar story for the pound. 0.8720 is proving magnetic. Below that level Sterling sellers emerge and above, buyers.

 

Something scary this way comes

Apologies to Ray Bradbury for stealing and bastardizing his book title.

 

It is to be hoped that this seeks events will provide an opportunity for H1 to close on a more positive note for the entire global economy.

 

But

 

A Labour victory, impeachment for Trump and a gloomy read on the Eurozone economy and the world will look an entirely different place.

 

Brexit is proving to be another scary matter when it should be bringing a sense of challenge and excitement. The extremely vocal contribution of the remain camp refuses to die down even as polls (I am prepared to believe these ones) show that support for Brexit has grown.

 

Sterling could be at 1.3500 or 1.2500 and 0.8400 or 0.8900 it really is that hard to predict where we are headed. Liquidity will be the key. Liquidity was the major driver following the Brexit referendum result. There is no way Sterling would have gone from 1.5220 to 1.3230 with normal liquidity.

 

The final word, as ever, should be given to those with a financial interest in the election. Bookmakers are still favouring a large Conservative majority. Possibly as high as 140 seats.

 

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Stay Strong

Election fears drive pound lower.

One of the concerns that has been at the forefront of Theresa Mays election campaign is the readiness of Labour to commence Brexit negotiations just eleven days after the election were they to be victorious.

 

The “wind has been taken out of her sails” to a certain extent by an EU announcement that “in need the start of negotiations could be delayed to allow for a change of Government”

 

At a stroke Messrs Tusk Juncker and their mouthpiece Michel Barnier have gained a significant psychological advantage.

 

The pound has fallen to its lowest level for almost two months as the euphoria of a snap election and a landslide victory has slowly evaporated. Against the Euro the pound last traded at 0.8750 having fallen as low as 0.8770 on Friday.

 

There is a willingness to ignore opinion polls that have been discredited in the past but were they to prove accurate, it would be the most significant electoral event in the U.K. in living memory. A period of political uncertainty were negotiations with the Eu were punctuated by a second election in 2017 would be an economic disaster.

 

A Hung Parliament spells catastrophe.

Were Thursday’s vote to be inconclusive, a number things would happen. First, Sterling would collapse as investors desert the U.K. and liquidity disappears completely. Any strategy for Brexit would be thrown into disarray and the possibility of a further election would become a probability.

 

A coalition of two or even three of the seven major parties is hard to countenance and would lead to deals being done that while politically expedient would not necessarily be in the best interests of the country.

 

From being a “walk in the park” punctuated by the odd speech about complacency, Theresa May now finds herself in a dogfight ironically all her own doing.

 

It is doubtful that we have reached the “it’s anyone’s guess who will win” stage as the Conservatives still hold 5%+ lead which would translate into a 15-20 seat majority. All that does is return us to where we were and does absolutely nothing for the economy, Brexit prospects or any other reason the election was called in the first place.

 

Jobs data hits dollar

The notoriously fickle nature of the non-farm payroll report came back to bite the FOMC. As I reported on Friday, “It seems rather cavalier of a Central Bank to pin any change in monetary policy on a data release so unpredictable as NFP!” and so it proved. The U.S. economy added 138k new jobs in May and the April figure was revised down to 174k to 211k.

 

It has been the norm in the pat for the economy to be adding 250k new jobs at this stage of the economic cycle as the Fed is forced to raise rates as wages start to take off. This cycle is clearly not the norm as the Fed doesn’t see the necessity to shrink its balance sheet adding stimulus while raising rates.

 

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There are polls and then there are Projections

Now we know!

It seems the poll that stated that the Conservatives would win 310 seats was simply the midrange of a projection from polling company YouGov that is using a new type of model.

 

Midrange? So, what are the upper and lower points. One assumes the high point is the 421 seats predicted in early May.

 

Misleading? Just a little!

 

Complacency was the major fear of the Conservatives when they called the election and it still should be. No one could expect a gaffe free campaign so we can probably excuse the elderly care and cost of childcare faux pas as simply that. One for each….fair enough.

 

Sterling is refusing to believe that the race is as close as it is being called. That is of course if you accept that the traditional Conservative good for the City, Labour bad mantra still applies.

 

Bookmakers, who should be “in the know” considering they have a financial interest in these things, puts the Conservatives as most likely to win between 375 and 399 seats, and labour between 200 and 250. That is not so far from where we started and would provide the mandate Mrs May was looking for.

Trump in Trouble?

There is a distinct possibility that at his informal testimony to a Senate committee next week James Comey, the former FBI Director, will confirm that he was pressured to “ease-up” on his investigation of Senior Advisor Michael Flynn. There is a whole legal wrangle about who said what but the whole issue is detracting from Trumps ability to “get on with the job”.

 

The dollar continues to react more to solid economic evidence than political tittle tattle for now, but, of course, that could easily change.

 

It’s June! The first few days of the month bring two important pieces of economic data to consider. First is today’s activity index from purchasing managers. These reports are issued for the U.S., U.K. and Eurozone as well as a more estimated report for China.

 

The Chinese report, already issued, showed an unexpected slowdown in activity from 50.3 in April to 49.6 in May. A number below 50 shows contraction in the manufacturing sector and this sent the Australian dollar, a proxy for China, lower.

 

The U.K. and Eurozone have both been reporting solid data in the mind to high 50’s with the U.S. a little lower but still expanding.

 

Today’s report will be a further contributing factor towards the perceived hike in rates coming next month.

 

It’s employment report eve.

It was employment report eve and all through the market nothing was stirring not even a……..currency? (apologies to Robert Burns)

 

The employment report, due tomorrow will, hopefully, be the final piece of evidence necessary for a rate hike.

 

Hourly earnings have been sluggish in the U.S. growing by just 2.5% in April. With inflation on the rise, real earnings are under pressure. A similar scenario as is being played out in the U.K. where real earnings are falling!

 

The market has been a little sluggish in its reactions over the past few days as liquidity has remained ample. Volatility has been limited to narrow ranges.

 

Sterling has shrugged off election woes for the Conservatives. The lack of movement on monetary policy has not stopped the Euro from closing in on 2017 highs against both the pound and dollar. The dollar itself, as I have already said, is totally focused on next month’s FOMC meeting.

 

The mean expectation for new jobs created in May is 180k. This is very close to the average of the past six months as analysts adopt a conservative stance to a number that has become very hard to predict given the secrecy with which the data is processed.

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