Morning Report: 8 June 2017

8th June 2017 By: Ranko Berich

GBP Britons head to the polls in the busiest day of the week with regard to financial markets. Sterling has strengthened against EUR and USD over the last 24h, but the real challenge will start to be felt this evening after the first exit poll is released. Exit polls usually have a meaningful impact on markets, and sterling should react accordingly. Due to polls narrowing over the last couple of weeks, we would expect a relief rally in sterling if the Tories get a majority, as the base case for sterling strength after the announcement of the snap election in April is recouped. GBP rallied on the back of the announcement of the snap election in mid-April, as markets understood that a much stronger Tory government would be positive for Brexit negotiations. Should Labour win a majority or there is a hung parliament, we expect the pound to weaken abruptly. The first exit poll is announced at 22.00 BST.

EUR The euro weakened yesterday after reports that the European Central Bank will downgrade the Eurozone’s inflation forecasts through 2019. The economic recovery of the single currency area is notable over the last two quarters, but inflation remains weak, at the same time inflation expectations have been weakening for most of the year. Nonetheless, several ECB officials have expressed their own view that the central bank should not maintain full accommodative monetary policy, which could have a significant presence in today’s press conference. Mario Draghi, President of the ECB, will speak at 14.30 BST.

USD Despite some intraday volatility against the euro, USD was quite flat overall yesterday. Today’s data calendar will be reasonably quiet, with weekly Unemployment Claims at 13:30 BST the only release of note. However, testimony from sacked FBI director James Comey should provide at least some fodder for the news cycle and potentially some impetus for dollar volatility. Comey’s opening statement to lawmakers makes it clear that he intends to stand by previous reports that Trump had asked him for “loyalty” and seemingly pressured him to drop his investigation into National Security Advisor, Michael Flynn’s resignation. Today’s hearing at 15:00 should be interesting, making it relevant for USD and other markets.

CAD The loonie broke its upward trend yesterday after markets were caught off guard when crude oil inventories official data was released. The Canadian dollar fell on the back of the news, losing most of June’s gains. Housing market data will be released at 13.30 BST.

UK news

  • FT: British voters are going to the polls on Thursday in a general election that Theresa May hopes will give her a much increased majority. The UK prime minister called the snap election in April — just two years after the last one — with her Conservative party riding high in the opinion polls, gambling that an apparent insurmountable lead over the main opposition Labour party would give her a decisive victory.
  • Reuters: UK annual house price growth hits four-year low in May – Halifax. British annual house price growth slid to a four-year low last month, underlining the housing market’s slowdown since last year’s Brexit vote, mortgage lender Halifax said on Wednesday. Average house prices in the three months to May were 3.3 percent higher than a year earlier, the weakest increase since May 2013 and slowing from a 3.8 percent rise in April. Economists in a Reuters poll had expected to see a somewhat sharper slowdown to 3.0 percent. In May alone, house prices were 0.4 percent higher than in April, confounding forecasts for 0.1 percent drop.