INSIGHTS

Duncan Donald

Mon, Dec 9


The UK Conservatives gain in the polls as election looms

With the UK election coming up this Thursday, the leading Conservative party look to have extended their lead in the polls. With at least 5 sets of fresh data being delivered over the weekend, all but one set of polls showed Boris Johnson’s party having extended their lead by between 10-20%. This follows on from a market shifting poll in the Sun newspaper earlier last week that showed a strong Conservative lead, giving the market the impetus to clearly break out of the 1.2800-1.3000 range to the upside, taking us to a weekly high of 1.3160. Of course, recent history has not shown that the polls are always right, but as Boris Johnson reiterates that he is the only man capable of delivering Brexit, it seems a majority in the UK believe him.  

 

If the Conservatives do gain victory with the single-handed majority this will likely be the most positive outcome for the Pound, any form of the coalition could well drag on the Brexit process or question it all together.  Despite poor campaigns from Labour and the Liberal Democrats, much is being spoken of tactical voting to impede Johnsons Brexit plans. To achieve this participation will have to be high and with much of the North of England and Scotland expected to receive snow this week this could make voting difficult.  With the result of the election expected early morning on Friday, we could well have some clear direction on the Brexit pathway, but of course, as we have learned with Brexit, nothing is easy.

 

It will be another big week in trade negotiations with the next wave of tariffs on Chinese goods expected to come into effect on the 15th. Last week the markets saw two-way volatility after Trump staggered different messaging over a few days. In the early part of the week, he flagged that whilst negotiations were ongoing, there was no immediate urgency to complete phase one this year. The natural assumptions of this were that the coming Tariffs would be actioned which brought stocks back down aggressively from the highs and brought safe haven asset appreciation. In the latter stages of the week, Trump and the China team signalled that things were, in fact, progressing well and displayed optimism. This misguiding information is frustrating the markets, as an avid market watcher such as Trump would understand the implications of his leading comments. Of course, the progression of discussions will be a key factor in this weeks price action as we await an update ahead of Sundays Tarrif deadline.

 

Last week we heard from the Bank of Canada who delivered their decision to keep rates unchanged at 1.75%. They did offer a slightly more positive outlook leading to an appreciation of the Canadian Dollar. This week is a big week for monetary policy with the Federal Reserve on Wednesday night, and after an incredible beat in Non-farm payroll data on Friday with a number of 266k against a forecast 187k as well as the unemployment rate and average earnings nudging lower and higher respectively bringing the US markets a surge of positivity. The consensus opinion is that the FED hold rates at current levels as such positive data does is not consistent with slowing growth and lower interest rates, naturally, this will of course anger Trump who has been demanding lower rates from his Central Bank.

 

Thursday brings Christine Lagarde’s first European Central Bank interest rate meeting. To date in meetings and speeches, she has remained muted on the course of monetary policy focusing more on environmental issues. But, Thursday is all about Monetary policy and her defining the course of the Central Bank. It is expected that she keeps rates unchanged at historic lows. Whilst she will likely adopt a cautionary wait and see approach, but, the potential for a shift in the monetary path on quantitative easing cannot be ruled out.

 

 

The Week Ahead

 

 Monday:

  •         GDP Growth Rate – Japan
  •         Balance of Trade – Germany

 

Tuesday:

  •         NAB Business Confidence – Australia
  •         Inflation Rate – China
  •         Balance of Trade – UK
  •         Industrial Production – UK
  •         Manufacturing Production – UK
  •         GDP Growth Rate – UK
  •         ZEW Economic Sentiment – Germany
  •         ZEW Economic Sentiment – Eurozone

 

Wednesday:

  •         Vehicles Sales – China
  •         Inflation Rate – US
  •         EIA Crude Oil and Gasoline Stock Change - US

 

Thursday:

  •         Machinery Orders – Japan
  •         Inflation Rate – Germany
  •         Inflation Rate – France
  •         Industrial Production – Eurozone
  •         Marginal Lending Rate – Eurozone
  •         ECB Interest Rate Decision
  •         Continuing and Initial Jobless Claims - US

 

Friday:

  •         Industrial Production – Japan
  •         Outstanding Loan Growth – China
  •         Retail Sales - US

 


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