Market News & Insights
7 June 2018

All Is Good With the World (or Is It?)

Where do we start this morning? At the moment it would help having a PhD in global politics with plenty happening to monitor and write about. To start, let’s look closer to home. Stories are circulating that UK Brexit Secretary David Davis maybe looking to resign. David Davis, who’s due to meet his European Union counterpart Michel Barnier next Monday, is said to be furious over PM May’s plan to keep the UK tied to the EU’s customs rules for an open-ended period of time. The row has escalated quickly, with Davis and his allies failing to quell speculation that he could quit over the issue. Reports also suggest the other pro-Brexit cabinet members Foreign Secretary Boris Johnson, Trade Secretary Liam Fox and Michael Gove, the environment secretary, also objected to the latest version of the customs plan. No surprises to see that sterling is on the back foot again this morning. EURGBP trading higher at .8790 at time of writing looking to finally make a proper break of the .8800 mark.

On the international stage, tomorrow sees the start of the two day G7 summit in Canada, which takes on added importance post the recent tit for tat tariffs between the US and EU, Canada and Mexico. There appears to be a show of force and unity amongst most other members with France joining Germany in warning President Trump that it won’t sign a joint statement of this week unless the US makes major concessions. While Trump’s top economic adviser, Larry Kudlow, called trade tensions shadowing the summit “a family quarrel”, finance ministers from the six other nations issued a rare public rebuke during a preliminary meeting last week, saying they would retaliate against the American tariffs. And Trudeau, the summit’s host, said Sunday that the tariffs were “insulting” to the longstanding alliance between the U.S. and Canada.

Despite these potentially worrying developments, markets seem to be indifferent to these. Stocks extended gains on Thursday amid growing confidence in the global expansion story, and as U.S. tech shares maintained their stellar momentum. The tech heavy Nasdaq Composite Index chalked up another record high. The positive sentiment has continued into the European open with all the key benchmark indices opening higher.

From a FX perspective, the euro is probably the most dominant story to note. Yesterday’s message by ECB chief economist that they are ready for a pivotal discussion on quantitative easing on June 14th. Against the backdrop of ongoing concerns over Italy, would suggest that the ECB maybe unfazed by the political crisis there and are now in a position to proceed regardless. As we flagged here recently, EURUSD was showing strong signs of being oversold which has now materialised and overnight broke higher above some key levels which suggests that the steep downwards trend in place since March has come to an end. EURUSD opens back above 1.18 this