Morning Report: 9 June 2017

9th June 2017 By: Ranko Berich

GBP Compared to the Conservative Party’s Parliamentary majority, sterling was actually fairly strong and stable overnight. Positions on the pound appear to have been readjusted rather than routed in the wake of the hung Parliament that has been delivered by yesterday’s General Election. While there was a 2% fall when the exit poll was released, to put this in perspective, sterling fell by a similar amount last year after Boris Johnson announced his support for team Leave. The key things to look out for going ahead will be the speed and ease with which the next government forms, and if they take an obvious early stance that might lead markets to conclude a “soft Brexit” has become more likely. Industrial Production data will be released alongside Construction Output and the Goods Trade Balance at 09:30 BST. However, these earlier releases are likely to be overshadowed by news and speculation about if Theresa May will, as reported, attempt to form a minority government as opposed to resigning.

EUR The euro weakened yesterday in the wake of a rather neutral European Central Bank press conference. The ECB kept its interest rates unchanged, as expected, and also changed its initial policy statement to remove references to potentially lowering rates in the near future. However, during the press conference ECB President Mario Draghi pushed back very strongly on suggestions that the change in the statement indicated the ECB would soon be reassessing its commitment to Quantitative Easing. All in all, the day’s events suggested the ECB’s dovish consensus had survived another meeting of the Governing Council, and the euro sold off as a result. This morning’s data has included has included a 0.5% contraction in French Industrial Production, following last month’s 2.2% increase.

USD USD is up against both sterling and the euro, with yesterday’s main development being highly charged testimony from James Comey. Comey, testifying to the Senate Intelligence Committee, gave an extraordinary account of interactions with Donald Trump which involved the President telling the former FBI director he “hoped” he could drop investigations into links between the Trump campaign and Russia. Comey declined to judge if Trump’s statements amounted to an attempt to obstruct justice, and the issue is already a matter of bitter partisan division, while investigations continue. Today at 15:00 BST Wholesale Inventories data will be released.

CAD The loonie had a subdued session yesterday, and is trading only marginally weaker overnight. Housing Starts fell sharply, but the New House Price Balance rose 0.8% in April. Today at 13:30 BST, Labour Market data will be released alongside the Capacity Utilisation Rate.

UK news

FT: British election results: May’s gamble backfires Humiliation of hung parliament for Conservatives as jubilant Labour beats expectations. Theresa May’s gamble on a snap election has dramatically backfired after her quest for a “stronger mandate” to deliver Brexit ended up in the humiliation of a hung parliament, leaving her future as prime minister in doubt. The Conservatives emerged as the biggest party but are projected to fall eight seats short of an overall majority; leaving the Tories trying to form a minority government. A visibly shaken Mrs May said during the night the Conservative party would “fulfil its duty” to ensure stability as the start of Brexit negotiations loom later this month. “The country needs a period of stability,” she said after winning her constituency in Maidenhead.

Reuters: Election deals May a crushing blow, blurring Brexit talks British voters dealt Prime Minister Theresa May a devastating blow in a snap election she had called to strengthen her hand in Brexit talks, wiping out her parliamentary majority and throwing the country into political turmoil. With no clear winner emerging from Thursday’s election, a wounded May signalled she would fight on. Her Labour rival Jeremy Corbyn, once written off by his opponents as a no-hoper, said she should step down. In the aftermath of one of the most sensational nights in British electoral history, politicians and commentators called her decision to hold the election a colossal mistake and derided her performance on the campaign trail. The BBC reported, however, that May did not plan to resign.