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Market Analysis

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Merkel on the Attack

NATO and G7 brings radical changes!

Was this weekend’s G7 meeting really all about a change in the relationship between the EU and the U.S.?


The battle was climate change but the conflict was more basic. Whilst Donald Trump has been upfront and possibly a little too “in your face” about “America First” and his protectionist/nationalist agenda, Angela Merkel has now decided to react in a similar fashion.


Mrs Merkel has an election to win and although she has a double-digit lead over her nearest rival, she has clearly decided that now is the time to get on the front foot.


Emboldened by the election of a like-minded French President, Merkel has commenced the realignment of the EU. In a “them and us” statement she has said the time for relying on friendships with those outside the bloc, the time to “fight for our future ourselves, as Europeans, for our destiny” has arrived.


Powerful stuff! Born from a newly found confidence that she is now undisputed EU Leader. Forget Tusk. Forget Juncker, its Merkel who hold the reins!


Sterling in a funk!

The market is unsure how to react to opinion polls showing a decline in the lead held by the Conservatives. Is it real? What has caused such a seemingly catastrophic fall? Can we believe polls after Cameron, Brexit and Trump?


If the polls are to be believed the Conservative lead is around 5% depending on who you listen to. Talk of a 150-175 seat majority are very much on the back burner and more traditional issues are beginning to be discussed. Like, who will win in Scotland? It used to be Labour’s stronghold and a key to gaining power. Following 2015’s almost total meltdown the main beneficiary, the SNP is also struggling and the Conservatives are viewing a strong showing “north of the border” as a real possibility.


The pound, which rallied by 4% following the election announcement is gradually giving back that gain unable to find fresh factors to drive it on. It has found short term support at 1.2780 which has held following Friday’s fall from 1.2950 but it still looks susceptible to any negative news. The Euro is also struggling to make ground against a recovering dollar and is now unlikely to make a fresh attempt on the 1.1250 resistance without a deeper correction. Against the pound the Euro has corrected to 0.8680 as natural end of month sellers above 0.8700 capped its advance.


Draghi continues to sound note of caution.

Mario Draghi, the ECB President continues to be the voice of caution. In a speech yesterday to the European Parliament he noted that as inflation remains subdued (tell that to the Germans) considerable stimulus is still needed across the Eurozone. Any rate hike is still a long way in the future but Draghi’s words seemingly also place the withdrawal of even part of the Asset Purchase Scheme very much on the back burner.


Greece has also raised its head again. This is the now traditional forerunner to any upcoming bailout plan. At the risk of sounding like the “boy who cried wolf”, it seems that the EU and Greece reach the brink, peer over the precipice then step back every time a new tranche of bailout funds becomes due.


The next instalment is due in July and fears are growing that the Greeks may opt out if it cannot agree terms. This will raise the fear of a default and Grexit.


Italian political turmoil is nothing new so the threat of a September election and a hung Parliament is having limited effect of the single currency. Former Prime Minister Matteo Renzi suggested that it would be sensible to hold an election in September to coincide with Germany’s. The significance of holding both at the same time is lost on me but some alignment of elections would bring one step closer the Federalization that is the natural progression for the EU experiment.

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If you can’t beat ‘em

Merkel becomes isolationist.


A weekend with Donald Trump clearly has an unusual effect on women!


Trump ended his first overseas sojourn as President by attending the G7 summit in Italy where climate change was the primary matter on the agenda.


He stood alone (fast becoming his stock position) in disagreeing with the Paris agreement and refused to confirm that the U.S. would be a signatory.


German Chancellor Angela Merkel in a speech following the summit commented that Europe could no longer rely upon its allies (U.K. and U.S.) and must fight for its own destiny as Europeans. President Trump, who agreed a form of words for the communique in which fighting protectionism was included, would have been proud of such an isolationist statement.


Merkel seems to have found a potential ally in new French President Emmanuel Macron. Clearly concerned about Macron’s election pledge to be tough on and demand reform from Brussels said Germany will do all it can to help France defeat its deeply worrying unemployment problems.


The new French administration is expected to be at the forefront of spearheading a new era of EU growth and prosperity. Spare a thought though for Greece. They will announce Q1 GDP and economic activity later this week. Activity will have contracted to 48 and GDP will show that Greece remains in recession.


Mrs Merkel is maybe looking in the wrong direction!

Opinion Polls hit pound

The weekend press in the U.K. has long been a driver for markets as opinions and various forms of rumour come to the fore. It is, however, stretching belief to the limit to imagine that the Conservative Party has only a 5% lead as the latest opinion polls suggest. It seems credibility flies out of the window when a worthwhile story emerges.


The credibility of opinion pollsters was destroyed by the Brexit vote and to a certain extent this was exacerbated by Trump’s victory.


One thing is certain. Sterling has run into a brick wall and whether the uptrend started by the resilience of the consumer and continued by the announcement of the election is over will be played out over the next few weeks.


Last week’s revision to the Q1 GDP data was a surprise. It has led to a fall of more than 2% over the week for the pound against the dollar and a 1.75% rise for the Euro. At best, opinion polls are fickle but economic data is the primary driver of currency value. Taken at face value, the GDP data and the reasons for the revision are going to be the long-term factors steering the pound.


Is it a bird? Is it a plane?

North Korea fired what appeared to be a short-range ballistic missile on Monday that landed in the sea off its east coast, South Korea’s military said. It must be only a matter of time before President Kim’s antics provoke a response. So far, the market has become pretty much immune to these launches and unless there is an escalation the Jpy, as the risk aversion barometer, will remain unmoved.


Oil fell again overnight as last week’s OPEC failure to curb a supply glut hit prices. It is perhaps ironic that 40% of U.S. oil needs are met by domestic supply. America is no longer hostage to OPEC as it was in the early 1970’s and can together with Canada is becoming less and less reliant on the Middle East. This is a major positive for the U.S. economy and will lead to stronger growth.


Later today, Mario Draghi will address the European Parliament. His past few speeches have continued his cautious wait and see approach to monetary policy. Rather than sporadic pockets of growth the Eurozone is now only seeing small pockets of concern and the economy is growing at close to trend. The withdrawal of the Asset Purchase Scheme is likely to happen sooner rather than later but an increase in official rates? Not for a while yet!

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GDP Revision: Surprise and Concern

Consumer stumble brings economic concern.

Official data for consumer activity in the U.K., such as retail sales and consumer confidence had been showing reasonable resilience recently holding back the effect of a weak currency and higher inflation.


It now seems that alone, the consumer is unable to stem the tide and with commercial activity suffering Brexit worries, the economy is starting to suffer.


Yesterday’s preliminary Q1 GDP revision saw growth revised lower from 0.3% to 0.2% as consumer support waned. Household spending slowed considerably in Q1 as inflation rose seemingly uncontrolled.


Analysts are concerned that the Bank of England is pinning too much on the effect of Brexit on the economy and some tightening of monetary policy could be necessary. This is, of course, a double-edged sword as higher interest rates will quickly feed through into mortgages and consumer credit.


The effect of the 4% rise in Sterling against the dollar since the General Election announcement should cool inflation a little more but overall sentiment is turning.


The pound made one final “dying swan” move above 1.3000 yesterday before succumbing to the dual blows of slower growth and an opinion poll which saw the Government’s lead slashed yet again.

Opinion Poll puts lead at 5%.

The latest opinion poll, which was published yesterday, showed that the ruling Conservative Party has a lead of just 5% over the Labour Party. It is hard to take opinion polls seriously following the total inaccuracy of Brexit polls less than a year ago.  Having said that it doesn’t pay to disregard such information as Black Swans are always lurking!


Sterling fell following the cut in GDP and saw a further 0.4% fall overnight as momentum drained way. A new recent low of 1.2865 was made but some buying interest was seen at that level and a moderate recovery saw previous support at 1.2880 being regained.


It is likely that until the election, Sterling will remain in relatively tight but volatile ranges as liquidity dampens large moves. The minor “flash crash” last week is always possible. For some reason, the GBP/USD pair appears particularly susceptible.


As the dollar was racking up its worst performance of the year so far, Sterling has been unable to hang onto gains made recently. This does not bode well as sentiment as well as economic data is starting to turn negative.


The election campaign gets back under way today following the Manchester bombing and Theresa May will be on the front foot looking to regain support as the only viable party to handle Brexit.

Oil tumbles as OPEC disappoints

At Thursday’s meeting in Vienna, OPEC and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018. The initial agreement would have expired in June this year.

Crude oil plunged 5 percent following the announcement.

This announcement disappointed investors who were looking for not just an extension to the end of the cuts but an increase in the volume. A glut of oil has kept prices weak so far this year. OPEC, who once a major say in the global economy has waned in importance in recent years as producers outside the cartel have grown in influence. Also, the growth in contributions from more “maverick” producers like Iran, Iraq and Libya has led to supply gluts.

The commodity currencies of Australia, New Zealand and Canada all fell following the news. The AUD shed 1.1% to reach 0.7430 and the CAD, 0.75% to fall to 1.3500.

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Balance of Risks Halts Sterling

Sterling drifting on a sea of sadness

The events of Monday evening have had a profound effect on the entire population of the U.K.


In typical fashion, a stoic resistance has formed and life will gradually return to normal. Or as close to normal as it can when another piece of the nation’s willingness to accept a multi-racial, multi-cultural society has been chipped away.

Equilibrium Rules.

The market has reached a hiatus for the pound which has been exacerbated by the suspension of election campaigning.


Monday’s terror attack has been met with a swift response from the Government and security forces although the threat level remains heightened.


The pound has fallen against both the dollar and euro although these falls can be seen as corrective following a 4% rise against the dollar. During May, the Euro has risen from a low of 0.8383 to 0.8677 as political concerns have evaporated following the French Presidential election.


A Conservative Party victory in next month’s General Election is likely priced in so the economy and Brexit will be the major drivers of the pound going forward. It has been made evident that, for now, the timing of a change to monetary policy in the U.K. is some way into the future. Inflation will continue to be a concern and the CPI data due for release on 13th June will be eagerly expected.


Euro remains strong

The single currency is benefitting from a period where there is nothing negative to say, even for a Eurosceptic like me!


Political concerns have dissipated, the economy is starting to grow and even Brussels appears to have agreed a policy towards Brexit. That policy may be “we want everything and no concessions will be considered”, but it is a policy nonetheless.


The E.U. Commission or Council or Parliament or whoever agrees these things sees no reason to concede any ground at all to the U.K. since it is them who wants to leave the cosy warm cuddly E.U.


Since this is an unprecedented event, the reaction of the currency market will be intriguing.


Clearly, the single market will be the most important matter since this is the common link to all matters. Free movement of people, goods, services and capital is at the centre of the E.U.’s primary tenet and will be negotiated aggressively. It is just the “people part” that will be the sticking point for the U.K. Like a cold war drama, we have some of theirs, they have some of ours, so a sensible approach will be needed.


FOMC Minutes a mixed bag.

The major downside of waiting three weeks before releasing the minutes of the FOMC Meeting is that the comments and conclusions could have become redundant.


That is clearly the case with the minutes of the May 2/3 meeting. President Trump’s “Russiagate” issues and his conflict with congress over the sacking of James Comey have superseded the Fed’s view on the economy.


Coincidentally, there was concern expressed about the continued strength of the employment market. March’s data had been weak and the revision in April was to make it even lower (98k to 79k). It was agreed to wait and see what happened with May’s report to decide on another hike. Since the meeting isn’t until 13/14 June, such a comment is superfluous as the May data will be released on June 2nd!


The market is pricing in a 75% chance of a rate hike in June. That is down from 80% last week. The chances of two more hikes in 2017 have now fallen below 50%.

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Market suddenly directionless

It was all going so well.

It is entirely appropriate that the FX market has reacted in such a subdued manner following the horrific events on Monday night in Manchester. Recriminations, apportioning of blame and support for victims are the overriding sentiments and they are as far removed from the currency market as it is possible to be.


Sterling has paused in the middle of its recent range having risen by 4% following the announcement of the June 8th election. With little in the way of new influences a period of consolidation and correction is likely.


It has been unable to remain above the 1.3000 level although this was a psychologically important level rather than anything more technical.


The serious support comes in at 1.2920. Looking back to its last rise to these levels, in September last year, the market showed a similar consolidative phase as it is now.


The “Brexit fall” from 1.5020 to 1.3120 in a single month will still attract an attempt at a reversal but it will take an unprecedented event like the Brexit shock for that to be achieved.


Central Bank Meetings to determine direction

Although we will still have the “cappuccino froth” of the U.S. Employment report next week, the main events in the coming weeks are the Central Bank meetings in the U.K., U.S., and Eurozone, together with General Elections in the U.K. and France.


A total 25bp hike is all we can hope for!


As a prelude to the FOMC meeting to be held on June 14/15, today’s release of minutes from the meeting held on April 26/27 are now a little superfluous. It will be interesting to see how the conversation around a rate hike ebbed and flowed but in the past month the dynamic of the major economic influence has changed out of all recognition.


It remains to be seen if President Trump can mend the bridges he has destroyed between him and the legislature to be able to pass the reforms and policies he has promised.


Sterling facing Headwinds.

Once the election is out of the way, attention will turn to Brexit. The stance of the U.K. Government will have been determined but the mandate it receives from the people. More fundamental to the performance of the pound is economic activity and the consumer and whether he/she decides to buy that new car/pair of shoes/holiday.


So far, portents of gloom have been exaggerated and the longer the consumer is happy to continue spending in this economy, the less likely they are to stop.


Inflation is rising, of that there is no doubt, but it is the driver of inflation that is in question. The effect of the fall in Sterling on factory gate prices has been clear for all to see, but that effect is now waning and yet inflation has risen from 2.3% in March to 2.7% in April.


Hovering around 1.3000, Sterling is now in a corrective phase. It is hard to see where the next positive driver will emerge from but equally, there are several supports that should be firm enough to withstand all but the most concerted of selling

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Trump Manages to push Dollar Lower

Weaker dollar a Trump, not Russiagate, issue.

It has been a goal of President Trump to weaken a dollar which, he feels, has been unjustly allowed to rise proving an economic and trading advantage to America’s partners.


He has got his wish as the dollar index has fallen by a little over 3% in the past week. The reason is not actually Russiagate which is a domestic matter (until Trump is impeached anyway) but the effect on his ability to do business with Congress and the economic fallout that will bring.


The FOMC meeting in June was being seen as the next opportunity to hike rates but now Janet Yellen is likely to be a bit more cautious. U.S. growth had been seen as being a little more solid in the U.S. than in either Europe of the U.K. leading to rate hikes but since the economic effect of Trump’s election victory is in danger of disappearing, so is the stimulus needed to drive growth.


The Euro has reached a level not seen since September last year. The hope is that ECB President Mario Draghi will be swayed by GDP, inflation and political factors to end his caution over the sustainability of growth Eurozone wide. So far there is little sign of that happening but with the next ECB meeting not until June 8th there is time for him to change his mind.


June 8th will coincide with the U.K. election so anyone trading Eur/Gbp is in for a lively few days!


First U.K. election doubts creep in.

The latest opinion poll regarding voting intentions on June 8th shows that support for the Conservative party has halved. This is the type of result that provides headlines but little substance. The margin for error is huge but since it is “out there” it must be considered.


Apathy on an unprecedented scale is the only danger facing Theresa May as the election approaches. She will have wished that she could have held the election sooner but in all practicality that is impossible.


Support for Theresa May was only going to go in one direction following initial predictions of a 175-seat majority. It is still likely that the majority will be over 100 which will give a more than sufficient mandate for Brexit to begin in earnest.


The practicality of Brexit has taken a “back seat” since the election as announced. E.U. officials will have been busy forming their plans while civil servants in the U.K. have entered the period of “purdah” when they are not allowed to do anything that could provide an advantage to a candidate from either side. This started on April 22nd and will continue until the results are declared.

Euro continues to gain as Merkel weighs in

Angela Merkel, the German Chancellor, weighed into the debate concerning Eurozone monetary policy yesterday, labelling the single currency as “too weak”. You could almost envisage her having a conversation at this week’s G7 Summit with Donald Trump squirming as she tries to defend Mario Draghi.


Trump, as we all know, has given away his lack of comprehension by accusing Germany of currency manipulation. The Germans are as much a victim of “one size fits all” as their Eurozone partners.


The Euro has reached 1.1250 against the suffering dollar but, more significantly, has seen a high of 0.8665 against Sterling.

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Trump Attempts Diplomacy: Fails

Visit to Riyadh masks domestic problems


President Trump decamped to Riyadh over the weekend at the start of his first overseas trip. You would have got long odds at the time of his election that his first visit would be to Saudi Arabia, Israel, The Vatican, Italy and Belgium. It is handy that there are G7 and NATO summits in the last two to justify his appearance.


In Riyadh, he delivered an inspiring yet direct speech to GCC leaders. The White House’s words not mine. The subject was “the need to confront radical ideology”. Having seen it I would call it hectoring and disrespectful.


In Israel, Trump will meet Prime Minister Benyamin Netanyahu and also Palestinian Authority Leader Mahmoud Abbas. He will apparently assure both leaders of his commitment to finding a solution to the Israeli/Palestinian Crisis. That shouldn’t be too difficult it has only been going on for three thousand years.


Trump clearly struggles when not telling people what to do which is why he is not a great traveller. Prior to his election, he shuttled between his penthouse and office in Trump Tower in New York and now between the East and West wings of the White House, occasionally visiting a Trump property for a little R&R.


The furore over the motives for the sacking of James Comey, the FBI Director continue to dog the President despite his contention that he is the victim of “one of the biggest witch hunts in history”.


Dollar mixed as Euro flies

The dollar is struggling to make progress given the political issues and claims flying around Washington.


The chances of a rate hike next month have fallen dramatically. Even any further hike in 2017 is now being called into question.


The ability of the President to pass his ambitious tax, social reform and stimulus packages is a concern following his very public disagreements with Congress. He is unlikely to receive much help with the more controversial and divisive parts of his agenda.


The dollar index remains stable rising 0.2% to 97.29 having fallen 2.5% last week to its lowest since November 9th.


The Euro is making major inroads as the new market favourite. Having broken the 1.1000 barrier earlier in the week, the single currency now looks set to test the 1.1250 resistance area.  The single currency is also making progress against the pound. It has broken the 0.8600 barrier overnight and could be set to test 0.8650 resistance last seen at the end of Q1.

Sterling facing the unknown.

What next for the pound? All the good news is out in the open but it has stalled even against a dollar which faces headwinds of its own. The 1.3000 level was a well-supported first target for the recovery following the Brexit vote.


That rise will feed through into lower inflation but to push on particularly, following a likely landslide General Election result, a perceived tightening of monetary policy may be needed and that is unlikely in the short or even medium term.


It is hard to say where Sterling will be trading in three months let alone six! As the second quarter ends, supportive data should see some support be rekindled around 1.2820 but a sustained rally above 1.3250 is highly improbable.


It is curious that the market likes the continuity of a large Government victory at the election then frets over the lack of a credible opposition. A majority of less than twenty such as David Cameron secured in 2015 keeps the Government honest as it faces a revolt and defeat if it meanders off course. However, with a 100+ majority that safety valve is taken away.


The real election drama won’t come with the result. That will arrive with the start of Brexit negotiations. The rumours that will circulate will come from dubious U.K. Government sources and Brussels which leaks like a sieve.


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Cautious Draghi Dampens Optimism

ECB President prefers vigilance.


It is entirely predictable in an institution like the E.U. where everything moves at a snail’s pace that the trajectory of interest rates should come under the same soporific influence.


A speech by Mario Draghi, the ECB President, to the Dutch Parliament yesterday was expected to herald a new dawn where the ECB moved to a neutral bias on the economy. We were then all supposed to believe that a move to a tightening bias accompanied by the removal of extraordinary measures would come later in the year.


The reality was, sadly, a little different. In a grey suit which matched his expression perfectly, Sr. Draghi counselled for caution.


He said that it is too early for the ECB to declare victory in its quest to boost inflation despite signs the bloc’s economic recovery is strengthening.  He is in no rush to raise interest rates or wind down the ECB’s 60 billion a month euro bond-buying programme. Music to the ears of Greeks, Cypriots and other struggling E.U. members but a cold shower of disappointment for Frankfurt.


The Euro continued to trade lower driven by profit taking following Macron’s French election victory.  It is now well below the 1.1000 level against the dollar and testing support at 0.8400 against the pound.


Inflation outlook to drive Sterling


Today sees the release of the Bank of England’s Quarterly Inflation Report.


This is the singular most forward-looking piece of research produced by any Central Bank globally. It provides clear advance guidance to the gameplan that the Bank will adopt, providing the market with solid evidence of the influences and concerns being monitored.


The Monetary Policy Committee also meets today with no change to official rates expected. A lively debate is likely over the degree of influence on inflation from the stronger pound. Concern over a drop towards parity against both the dollar and Euro have evaporated completely.


Admittedly, Sterling is being driven by political rather than economic influences but beggars can’t be choosers!


Mark Carney, the Governor, has been constant in his lack of concern (in public) regarding inflation and he will be relieved that the pound now has a much more solid foundation. The economic effect of Brexit is yet to be seen. The influences from scaremongering remainers need to be disseminated from fact and any mention in the inflation report will be well received for the clarity it will bring.


Trumps Motives Questioned


We will never know why Donald Trump sacked FBI Director James Comey.


Trump’s detractors will, of course, point to a cover up and that Comey was getting too close to uncovering Russian meddling in the election. The truth, as ever, will lay somewhere between the Russians and the Clinton emails. If nothing else, Trumps actions are expedient. In typical fashion, he saw an opportunity and went for it.


The fallout from what will be seen as a domestic matter has had negligible effect of the dollar. The index rose close to 99.75 yesterday. Given the continued widening of interest rate differentials, a move above 100, last seen in mid-April is likely. The Euro has corrected lower but sterling remains well supported as evidenced by the fall in the EUR/GBP rate to close to 0.8400.


The New Zealand dollar, a currency driven to some extent by global risk appetite has been traditionally supported by a high interest rate.


This driver has, to some extent, disappeared following the financial crisis and looks set to remain absent. Today’s meeting of the RBNZ pushed a rate hike further into the future. In similar fashion to the RBA, the RBNZ had stated that interest rates had bottomed but any commencement of tightening is some way off.

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Risk Aversion Raised

Trump fires FBI Head


President Trump continues to think he is still Chairman of a major corporation rather than the “Leader of the Western World”.


His action in firing the FBI Director despite James Comey being criticized for his handling of the Clinton email scandal has been labelled politically motivated. Trump has had a love hate relationship with James Comey over the past year. He praised his handling of the email issue. However, it appears that his investigation of Russian meddling in the election has struck a little too close to home.


Congress is divided on the issue. This doesn’t bode well for the negotiations Trump is going to have to enter to pass his tax and social care programmes.


The dollar index fell to test support at 99.40.


An additional factor in renewed risk aversion is a comment by the new North Korean Ambassador to the U.K. that Pyongyang is close to performing its sixth nuclear test. A more liberal and conciliatory President has just been elected in South Korea. His commitment to dialogue with Kim Jong Un could be seen as a weakness to be exploited by the North Korean leader.


U.K. inflation outlook improving.


The National Institute for Economic and Social Research has lowered its prediction for the peak in inflation in the U.K. Contrary to the view of BoE Governor Mark Carney, the NIESR had seen inflation overshooting its target to reach 3.7% in the Autumn.


This view has been tempered somewhat, influenced by the bounce in the value of the pound. They now see a peak of 3.4% still above Carneys level of 2.7% but as Sterling strengthens, these two estimates should converge further.


Tomorrow release of the BoE’s Quarterly inflation report should also refer to the pound’s improvement. Following that, the MPC will meet. Interest rates will remain unchanged but there could be a shift in either the amount or the tenor of the asset purchase programme.


Predictions of a landslide victory for the Conservative Party in the forthcoming election continue to provide support. A correction on profit taking on long positions is likely, similar to what has been seen in France as the reality of Brexit and a Government without a viable opposition kicks in.


Chinese Inflation data released.


Consumer prices in China grew by 1.2% YoY in April up from 0.9% in March. This relatively benign number will please the PBOC struggling to find a monetary path to drive the vast Chinese economy to global prominence.


Producer prices, the cost of raw materials at the factory gate, rose by 6.4%. Lower than both the previous release and analysts’ expectations.


Tomorrow’s BoE MPC meeting will be preceded by the release of industrial and manufacturing production data together with trade figures. Expectation is for an improvement in each of these measures which should temper and Sterling weakness from dovish comments on inflation.

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Eurozone Growth to Top U.S.

Economy turns positive


The true effect of the French election result is being felt throughout the whole Eurozone with renewed confidence. The clouds have parted to reveal the bright sunny days ahead.


Next week’s GDP data is likely to see growth exceed that of the U.S. for the first time since 2008. Inflation is up at 1.9% and growth is likely to be around 2% YoY.


The mandate for change handed to Emmanuel Macron despite only polling 43% of the population will be carried forward into calls for reform to the E.U. Macron, a pro-European is sufficiently astute to understand that anything other than a united front over Brexit could lead to further turmoil.


There is no question that, as a social experiment, the E.U. is a remarkable success but economically? Not so good!


Unless and until there is a total harmonization of all aspects of fiscal as well as monetary policy there can be no integrated economic policy.


Despite the brilliant job done by Mario Draghi in negotiating the uncharted waters of the financial crisis, he has had to operate with “one hand tied behind his back”. The unequal influence exerted by (in particular) Germany does little to improve the situation.


This week sees the release of Greek unemployment data. Last month the rate was 23.5% with little improvement expected this month. Nothing shows that “one size fits all” doesn’t work. How can there be pressure for a rate hike when a large part of the economy still needs stimulus? The Greeks are not alone


Brexit test for both sides.


The election rallying call of Theresa May for a “strong and stable” Government with a clear mandate should bring concern to E.U. officials.


The classic Brussels duplication of roles sees the E.U. speak with anything but a united voice. Donald Tusk and Jean-Claude Juncker both feel they are the decision maker pulling the strings of “Chief Negotiator”; Michel Barnier.


Access to the single market is the major concern for U.K. businesses who see a 45% of their exports going to the E.U. For the “man in the street”, it is immigration that is the major issue.


Despite a (relatively) narrow victory for leave, if the question had been “shall we move from Sterling to the Euro”, it is estimated that the vote would have been 65/35 against. As an economic bloc, the E.U. must insist on every member being in the Euro too so Brexit would have come at some point without doubt.


MPC Meeting looming large


The feel-good factor being engendered by the election will take a back seat over the next few days as the economy takes centre stage. This Thursday sees the first MPC meeting for a couple of months. This will be preceded by the release of the Quarterly Inflation Report.


The inflation outlook should improve with Sterling having been improving throughout the first two quarters.


Any lowering of the outlook for inflation to peak at 2.7% in the Autumn could lead to a short-term dip for the pound. The Governor, Mark Carney, admits concerns over the effect of Brexit and the performance of the consumer. However, manufacturing and services data released recently has painted a brighter picture of the economy. No change to the official rate of 0.25% is likely although some movement is possible in the asset purchase programme.