Sterling sat in the green for most of yesterday’s session until Parliament rejected Labour’s proposal to take control of the Parliamentary business motion at the end of the month and attempt to legally rule out a no-deal exit. This meant that candidates such as Boris Johnson still posed a credible threat to taking the UK out of the EU on WTO trade terms, for now at least, and kept the possibility of a General Election on the table as the October deadline draws closer. Labour leader Corbyn was heard shouting “you won’t be cheering in September” after the defeat in yesterday’s vote, which by all measures was only a marginal defeat by 309 votes to 298. Today, the first stage of the Tory leadership contest begins with the 10 candidates needing 17 votes or more to automatically stay in the race, however, should all candidates receive the required backing then the member with the least votes is removed from the race. The bottom four candidates are currently stuck on eight supports and will be desperate to pull in some of the 80 Tory MPs who have yet shown their true support.
The single currency came close to three-month highs yesterday against the greenback after an early rally, but came under pressure in the US session and eventually closed the day on a lower level. US car tariffs remain a perpetual risk for the Eurozone economy after US President Donald Trump heavily criticized Germany for continuing with their support of the Nord Stream 2 pipeline, threatening Germany with sanctions. The announcement followed earlier threats of tariffs on French wine and could hint at the EU being next in line to feel Trump’s wrath. April’s Industrial Production figures will be out at 10:00BST and data released earlier by Germany and Italy suggest we will likely see a bit of a naff release, with IP weighing on Q2 economic growth.
The US dollar was thrown around during yesterday’s CPI release at 13:30 BST as core CPI to the downside at 0.1% for the fourth consecutive month in May. The initial reading eroded the credibility of Chair Powell who stated the fall in domestic inflationary pressures was temporary, but a more in-depth reading caused US yields to rise yet again and allowed the dollar to retrace its fall. Core CPI inflation is beginning to stabilise around the 2% level after dipping slightly in the six months through to January. Overnight, the dollar bounced, predominantly against the euro, after President Trump threatened Germany with sanctions due to Angela Merkel’s continued support for the Nord Stream 2 gas pipeline from Russia. The dollar DXY index rallied over 0.3% on the announcement to session highs. The move has added to previous threats of tariffs on French wine from the Trump administration, while the elephant in the room regarding EU auto tariffs is yet to be addressed. With tensions between the US and China arguably on ice until the G20 summit, despite marginally ramping up over the last few days, the EU may be next in the firing line.
Loonie, loonie, loonie, loonie may not have been the exact lyrics of the Kaiser Chief’s 2007 indie rock hit, but price action definitely provided similar disquieting tones after 4-month lows on crude oil prices dragged CAD down. US Department of Energy data showed that inventories continued to rise in the US by 2.21 million barrels last week, a build in stockpiles for the second week in a row as global growth remains a worry. The negative impacts on oil demand due to the US-China trade spat, combined with ongoing concerns of overproduction currently weigh on oil prices, topics about which we expect more information coming out this week. Today the OPEC comes with its monthly report which may tell us more about the cartel’s response to threats on oil demand. On Friday the most esteemed International Energy Agency will come with a more long-term outlook, including forecasts for 2020.