Incisive market commentary from David Morrison

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Investors on edge after Wall Street sell-off
30 Jun 2017
Central bankers keep traders guessing - Video Update
29 Jun 2017
Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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It’s been a bit of a “risk-off” day so far across financial markets. Safe-haven trades remain popular with precious metals and the Japanese yen well bid while the yield on the US 10-year Treasury fell to 2.14% at one stage - a low for 2017. Crude prices continue to come under pressure as investors continue to mull the ramifications of the Saudi-led alliance cutting diplomatic ties with Qatar.

There can be no doubt that investors need to consider the escalating tensions in the Middle East, and this is something which looks set to play out over the coming weeks. But there are more immediate issues which are helping to concentrate minds at the moment, particularly events set to take place on Thursday.

First up we have a meeting from the European Central Bank (ECB) followed by a press conference hosted by ECB President Mario Draghi. This is important as it comes at a time when the ECB is under increasing pressure to follow the US Federal Reserve and begin tightening monetary policy. Yet Mr Draghi has made it abundantly clear quite recently that he doesn’t believe the time is right for the central bank to reduce stimulus. Consequently, what he says tomorrow could have considerable ramifications for the euro in particular.

Later in the day former FBI Director James Comey is set to testify before Congress. Mr Comey will answer questions concerning the FBI’s investigation into sacked national security adviser Michael Flynn’s ties with Russia. Mr Comey will also be quizzed over his allegation that President Trump attempted to intimidate him into scaling back the investigation.

Meanwhile, we also have the UK General Election which, regrettably, is playing out against a backdrop of the terror attacks in London and Manchester.  One of the latest “poll-of-polls” has Conservatives on 44% with Labour on 37% so giving the Tories a 7-point lead. This is almost smack-bang between Sunday’s online poll from Survation which gave the Tories a 1-point lead and a ComRes poll on Saturday for The Independent which showed them ahead by 12 points.  Today’s poll-of-polls suggests that the final result should still see the Tories maintain an overall majority. However, it’s difficult to translate opinion polls into actual seats - that’s a science based on estimated and manipulated data. Nevertheless, The Independent has given it a go and political analysts project 347 seats for Conservatives and 223 for Labour. This would suggest that the Tories pick up an extra 17 seats compared to their pre-election position, and build on their majority in the House.

As far as the bookies are concerned (which is, after all, where punters put their money) the prediction is that the Tories will get around 360 seats and so increase their majority by 30. This would seem to be a fair result. It suggests that the Tories won’t get anything like the 100-plus seat majority which was touted back in mid-April when Theresa May first called the snap election. At the same time, it indicates that there is still plenty of support for the Tories despite their lacklustre campaign and disastrous manifesto U-turn on social care. And it would appear that investors agree with the punters. Sterling is holding up well and trading around 1.2900 against the US dollar. This means that despite all the events and poll swings of the last few weeks, cable has hung on to all the gains it made when Mrs May first called the election. Back then, the view was that Labour was set to be annihilated and have their worst defeat since the 1930’s giving them fewer than 150 seats.

The prevailing wisdom is that a good result for Theresa May would be if she picks up 50 seats or more. This should lead to a spike higher for sterling if that’s what the exit polls suggest on Thursday night. If it looks as if Mrs May has failed to build on her current majority, we can expect sterling to sell off, at least initially. In both cases the overall trend for the British pound over the next few days will depend on any cabinet changes Mrs May makes after the event. In essence, all the market is concerned about is the upcoming Brexit negotiations. If Mrs May keeps her current team and insists on hard-nosed negotiating then sterling should continue to strengthen.

It goes without saying that a hung parliament or a Labour victory would lead to a sharp sell-off in sterling. It’s also fair to say that these two possibilities haven’t been priced in.


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Posted by David Morrison

Category: PM Bulletin

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