Market movers today
Focus today will be on the UK elect ion result and the many questions that have arisen after the election led to a ‘hung parliament ‘ according to the polls, see Research UK: Hung parliament adds government risk premium to GBP.
There are only few economic data releases, with a range of trade balance figures published in the UK, Germany and Denmark. In the UK, manufacturing product ion for April and the NIESR GDP estimate for May are due out , which is usually a good predictor of actual GDP growth).
In Scandinavia, focus will be on the Norwegian core inflation print, which we estimate fell to 1.5% in May. Household consumpt ion data for Sweden is also due out , see next page.
Selected market news
In the UK election, exit polls suggest Theresa May failed to get enough votes to form a majority government. Instead, the UK is facing a ‘hung parliament ‘ in which neither the Conservatives nor Labour has enough seats to rule a majority government . May’s aim to get a stronger man date has backfired and the UK has been thrown into political turmoil shortly before Brexit negotiations with the EU start. The latestpoll showed the Conservatives getting 318 seats while 326 seats are needed for a majority.
GBP has weakened overnight and we should expect more depreciation pressure and volatility in the near term as uncertainty prevails (see next page). EUR/USD is slightly lower while other markets are fairly calm with little movement in Asian stocks or bond markets.
Many questions are still up in the air that markets will focus on today. (1) Will Theresa May resign or not? It seems like she might step down but that the Conservatives will hold on to power. If May steps down, who is going to be the new Tory leader? (A possible Tory leadership contestwhile the Brexit clock is ticking). (2) Will the new government changes its view on Brexit? Was the election a dismissal of hard Brexit or have Britons just moved on to domestic issues like austerity, social care and so forth? The new government has some thinking to do. (3) How stable will a new government be?
Overnight, Chinese inflation data showed a further drop in PPI inflation in May from 6.4% y/y to 5.5% y/y. On an m/m basis, PPI dropped for the second consecutive month after rising for nine straight months. The data highlights that China is again turning into a deflationary force after the reflation lastyear and in early 2017. CPI inflation showed a small rise to 1.5% from 1.2%.
At ye sterday’s meeting, the ECB changed forward guidance on policy rates as it no longer expects these to go to ‘lower l evels’. The rest of the forward guidance was left unchanged, implying that the ECB now expects policy rates ‘to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases’. See ECB Review: Slightly less dovish forward guidance, 8 June.
