Market movers today
Focus today will continue to be on the ongoing turmoil involving UK Prime Minister May and her cabinet. Also, for the first time, we will receive a monthly GDP figure in the UK: this will provide an important pointer on the prospects of a Bank of England rate hike in August (market pricing points to 70% probability of this at present).
Also on the data front, the German Zew data will be released this morning, and we will pay attention in order to see if this will prove to be another improving German data point.
In the Scandi sphere, Norwegian CPI will be released and we expect 1.2% on the core component, which should be on the strong side of consensus. In order for a rate hike by Norges Bank to be postponed, we would have to see a very negative surprise. That said, one should not over interpret the figure due to the notoriously volatile flight ticket prices.
Selected market news
Theresa May’s UK government was challenged further yesterday after foreign secretary Boris Johnson resigned as a result of the recent Brexit-related disputes. Johnson’s exit comes after Brexit Minister David Davis and his Deputy left the cabinet over the weekend in disagreement with the relatively soft Brexit plan laid out by May. May’s leadership thus looks increasingly challenged with only nine months to go to UK’s formal EU exit date, and the latest developments in our view heighten both the chance of a soft Brexit as well as the chance of no deal on Brexit at all. GBP weakened, UK yields fell and the FTSE-100 was lifted slightly as a result.
A range of ECB speakers were out yesterday. Draghi expressed belief in the eurozone recovery but also reiterated that the ECB has to be ‘patient, persistent, and prudent’ and thus that no hikes will be seen this side of the summer of 2019. Separately, Benoit Coeure stressed that the current stance on monetary policy is working well. Ewald Nowotny noted that negative rates should not become permanent and hinted that the low-for-longer stance on rates and hence weaker-for-longer EUR are partly due to the US-led trade war via the negative growth consequences. The trade dispute will most likely continue to linger as a market theme over the summer and we thus continue to see USD strength return near term.
US president Trump appointed Judge Brett Kavanaugh for the US High Court, hinting at a conservative shift in legal matters such as abortion, gay rights, gun restrictions etc.
Risk sentiment remains positive overall despite the UK political disarray: equities generally ended higher in both the US and Asian session and JPY remained under pressure. US Treasury yields were higher across the curve with the 10Y rising close to 3bp to 2.86%. USD fought back a bit after the recent loosening stream. Separately, TRY plunged after Turkey’s President Erdogan issued a decree allowing head of state to appoint central-bank governors. Scandies were little changed on the day but oil continued to edged higher.
