Morning Report: 12 June 2017

12th June 2017 By: Ranko Berich

GBP Friday’s momentous political events continue to have a muted effect on sterling this morning. Sterling trading comfortably above Friday’s lows against EUR and USD, but well below the levels seen before it became clear that Conservative leader Theresa May’s election campaign had cost the Tories their Parliamentary majority. Worse still, confusion reigned as Theresa May released a statement that she had agreed to form a minority government with the support of the Democratic Unionist Party of Northern Ireland, only for the DUP to force her to retract the announcement, claiming that talks had merely been “positive” rather than an agreement in place. With the influential 1922 Committee of backbench Tory MP’s set to meet today to discuss May’s future, speculation remains rife about the possibility of May’s resignation, with former Chancellor, and current Evening Standard editor, George Osborne exacerbating May’s troubles by referring to the Prime Minister as a “dead woman walking”. Her resignation seems unlikely; one of the biggest criticisms May had previously faced is that she had only inherited former PM David Cameron’s parliamentary majority, not earned her own, and thus if she is able to form a government, it seems improbable that she wouldn’t want to lead it. Moreover, there appears little appetite in the Conservative party for another leadership election, nor in the general public for another election, given that it’d be the fourth national poll in the past two years. Amidst this political turbulence, this week’s economic data will be extremely important for sterling, with the Consumer Price Index due for release tomorrow, followed by Labour Market data on Wednesday and Retail Sales on Thursday. As if this and the ongoing political developments weren’t enough, the Bank of England’s latest policy decision will also be released on Thursday.

EUR The euro stabilised after some early losses on Friday, and made further gains versus USD overnight. The weekend’s biggest news was that French President Emmanuel Macron appears set to win a thumping legislative majority in French elections, with exit polls suggesting the centrist’s brand new En Marche party could control up to 70% of seats in the National Assembly. The onus will now be on Macron to finally reform France’s economy, particularly the labour market. Italian Industrial Production data will be released at 09:00 BST, beginning a slow week for eurozone data that will nonetheless include Eurozone Industrial Production on Wednesday and the Consumer Price Index on Friday.

USD USD had an uneventful week last week, with Donald Trump’s twitter account uncharacteristically uncontroversial. The calm is unlikely to last, this week’s calendar is jam packed with top tier events and releases. Producer Prices will be released on Tuesday, ahead of the Consumer Price Index and Retail Sales on Wednesday. The Federal Open Market Committee will announce their latest decision – quite probably a rate hike – on Wednesday evening. The second half of the week will see less action, although Industrial Production data will be out on Thursday followed by Building Permits on Friday.

CAD The loonie strengthened on Friday, driven by higher oil prices and some strong Canadian jobs data. The economy added a whopping 54,500 jobs in May, while wage growth accelerated. An increase in labour force participation meant the Unemployment Rate ticked up slightly. Today at 18:35 the Bank of Canada’s Carolyn Wilkins will speak in Winnipeg.

UK news

  • FT: Theresa May faces party showdown after disastrous election UK premier to meet angry MPs as former chancellor brands her ‘dead woman walking’. Theresa May faces a showdown with newly-elected Conservative MPs on Monday as the British prime minister desperately attempts to shore up her position following claims by former chancellor George Osborne that she is “a dead woman walking”. One Tory MP said Mrs May would have to give “the performance of her life” if she is to reassure a traumatised party that she can carry on leading the country and deliver Brexit, in spite of throwing away her majority after a disastrous election campaign. There were signs that the Tory civil war on Europe was about to reignite, while Mrs May was still trying to negotiate a deal with Northern Ireland’s Democratic Unionist party to give her a majority in the House of Commons.
  • Reuters: UK business confidence slumps after election: IoD survey British business confidence has fallen sharply since last Thursday’s inconclusive election that left Prime Minister Theresa May weakened ahead of Brexit talks, according to a survey by the Institute of Directors published on Monday. The survey of nearly 700 members of the business group also exposed deep concern over the political uncertainty and its impact on Britain’s economy. May failed to win a parliamentary majority in the election. Her hopes of forming a government now lie with winning support from Northern Ireland’s Democratic Unionist Party, which won 10 seats in the election. The IoD found a negative swing of 34 points in confidence in the UK economy from its last survey in May. While 20 percent of members were optimistic about the economy over the next 12 months, some 57 percent were either quite or very pessimistic – a -37 “net confidence” score. That compares with a -3 percent score in May.