- Comey’s text indicates nothing disastrous for Trump today, markets remain cautious;
- GBP and FTSE flat ahead of exit polls this evening;
- EUR edges lower as traders await ECB views on inflation and monetary policy outlook.
All eyes in the US will be on former FBI Director James Comey’s hearing in front of the Senate Intelligence Committee today, with further issues for President Donald Trump seen as being possibly problematic when it comes to delivering on his growth policies.
Based on the text of Comey’s prepared testimony on Wednesday, it would seem that markets aren’t expecting anything too shocking, despite there being a reference to Trump urging him to drop the investigation into former National Security Advisor Michael Flynn. Still, close attention will be paid to the public part of the hearing and should anything very controversial appear, it could impact risk appetite in the markets.
Sterling and the FTSE 100 are both trading relatively flat on the day as traders await the first exit polls this evening. The election campaign has not exactly gone as Theresa May planned or markets expected, with the monumental lead that the Conservatives had over Labour having been slashed in recent weeks, to the point that a majority is now in doubt. Still, markets appear relatively confident that a majority will still be achieved despite poll results ranging from a large majority to none at all.
We’ve seen previously that these polls can be unreliable – in 2015 in favour of the Conservatives – but we’ve also seen the populist vote prevail in recent years as well. With polls being so varied, it seems in recent days that markets have largely shrugged them off and instead assumed that May will get her majority. The problem now is that with sterling trading at near nine-month highs against the dollar, having gradually rallied since the start of the month, it is vulnerable to a sharp decline if things don’t go as planned. Should we see a hung parliament then things could get messy. While this may also be bad for FTSE initially, given the general knee jerk reaction that can often follow, the weaker pound may boost it in the medium term, as it did in the days after Brexit.
The euro is looking a little soft ahead of the ECB announcement. A leaked draft staff projections yesterday suggested that while the GDP forecast is expected to be raised, inflation is forecast to be lower than previously thought into 2019. While the euro reversed its losses prior to the close on Wednesday, the softness that we’re seeing this morning may suggest that traders are preparing for a more dovish forecast. The question now is whether that changes the ECBs outlook for monetary policy and if we see any change in rhetoric today. That could be as simple as a slight amendment to the statement or as bold as suggesting that further adjustments to the bond buying program could be announced before December, when the current program expires.
