US Futures and European markets have shaken off the concerns of feeble economic growth. The better than expected French Services PMI data is also supporting the sentiment. Investors are no longer paying any close attention to the weakness in the US Manufacturing PMI data which was released yesterday. The stance is that any bad news is going to have a reaction from the Fed and this reaction means more dovish monetary policy.
Investors Neglecting ECB’s Warning
Overall, US investors are picking up momentum from European markets. All major European indices are trading strong, the FTSE index is up 0.60%, the DAX index gained 1.13% and the CAC is also up by 0.90%. The interesting fact is that investors are neglecting all the warnings from the hawkish ECB members. These policy members do not think that there is a strong need for another QE. Francois Villerory de Galhau, an ECB member said yesterday that he hold’s a cautious view on restarting the QE but he is in favour of reducing interest rates further. So far, investors are pricing in another 10 basis points interest rate cut by the ECB and investors are going to get more clarity on this as the bank’s chief economist, Philip Lane speaks later today.
Bojo Faces His First Defeat, What Is Next
Closer to home, Boris Johnson faced one of his first defeat in Parliament yesterday. The message was clear: no-go for Bojo. Twenty one Tory MPs decided to join the opposition leader camp and Boris faced a defeat in the final voting count. His defeat was by a huge margin, 27 votes.
Traders took this as a positive sign and this pushed the Sterling-dollar pair higher. The onward path for sterling is likely to be to the upside. This is because Boris Johnson is going to call for a snap election and the chances are that he is likely lose. The fact is that no one wants to have no-deal Brexit, this is not what Brexiteers signed up for and Boris Johnson is wrong in thinking that he is going to deliver Brexit no matter what the cost is.
Nonetheless, the drama continues in Parliament today as the British law makers will seek to pass a motion which would push Boris to delay Brexit until next year. So, overall the likely outcomes are delay in Brexit and a snap election. Delay in Brexit would relieve some further selling pressure for Sterling whereas another general elections is going to keep the volatility higher.
Later today, we also have the UK’s composite PMI data and we expect a tad improvement to 51 from 50.7. The consensus projections are further weakness to 50.5.
Gold To Break 1600
The dollar weakness is once again on the back foot today but this weakness in the dollar index isn’t supporting the gold price. The fact is that the Fed committee is divided in terms of their next monetary policy move while investors have already priced in another interest rate cut. The US economic data is going to continue to suffer from trade war and as long as this remains as a main denominator, we believe that gold can easily cross the 1600 mark in the next few weeks. Moreover, the drop in nominal yields is going to keep gold as an attractive asset class among investors.
