Like so often in the past couple of months, we begin the commentary looking at the political landscape which has been one of the key factors driving markets, rather than actual market data. The tension in Spain remains high with King Felipe’s attempted intervention doing little to ease the situation. Spanish stocks have borne the brunt of this uncertainty as it posted its biggest one day fall in fifteen months, while Spanish bonds and equities were also heavily sold. On the currency front however, the euro seems happy to brush off the tremors from the Catalan referendum fallout, as it breaks below the 1.12 (.8929) GBPEUR level this morning, while against the greenback it continues to go north of 1.17. Euro traders however may not be so willing to hold the single currency going into the weekend as tensions here are expected to rise. As suggested earlier in the week here, a break higher for EURGBP (lower for GBPEUR), may see a push through the 0.9000 mark again (GBPEUR 1.1111).
Theresa May’s speech yesterday caused more of a storm on social media than it did on the markets as an array of mishaps did little to revive the Prime Minister’s confidence. Background murmurs of the PM showing signs of cracking and with her tenure apparently under scrutiny, there may be more misery for the pound ahead if we see further signs of Boris elbowing in. On a more positive note for the pound, the latest Services PMI data released yesterday was slightly better than expected coming in at 53.6 vs the expected figure of 53.2. Today’s focus for the pound will be on MPC member Ian McCafferty, who voted for a rate rise the last meeting, and BOE Chief economist Andrew Haldane who are both due to give speeches later today.
Over in the US, where again stock markets continue their 7 day streak, with the S&P closing yesterday’s session at fresh record highs. This may come as a surprise to some as President Trump is already nearing a choice for the next leader of the Federal Reserve, and the short list of potential candidates looks set on delivering a hawk. Trump said last week that he would come to a decision on a nominee in the next two to three weeks, with current Fed chair Janet Yellen’s term expiring in February. For now however, traders seem to be focused on the upbeat data from the US with ISM Non-Manufacturing data out yesterday, the latest to beat expectations. The hope of Trump passing his latest tax policy also look to be on the mind of investors but with this set to increase US debt, alongside having a hawk in the driving seat, something doesn’t quite add up here, but we’ll keep you abreast of all this as the news filters through. Data today stateside comes in the form of Unemployment Claims, while later in the afternoon we have Fed members Powell and Harker speaking.