As we highlighted yesterday, markets are set to be heavily influenced by political factors at the start of the summer season. We flagged three key stories as the main ones to watch, namely Trump’s trade wars, Brexit and German immigration discourse. Of the later, it looks like German Chancellor Angela Merkel halted the threat of a coalition government break up and has kept her Bavarian sister party in the fold. This resulted in some euro stability this morning, with the single currency rising moderately against much of its peers. EURUSD opens a few bips higher at 1.1650 as does EURGBP also up, at .8850.
The other major political story is of course Brexit. The noise from the business community has certainly got louder in recent weeks and the British Chamber of Commerce were out again warning that U.K. companies are at “breaking point” over the lack of clarity on Brexit, and are slowing down their investments as they await answers to key questions surrounding Britain’s departure from the European Union. They added that business confidence and investment intentions will continue to deteriorate until we get “urgent clarity on the practical, detailed issues that underpin trade”. The government has made “limited progress” on just two of 23 issues where business seeks clarity, it said. On Tuesday morning the Professional Services and Business Council, representing groups including lawyers, accountants and consultants, weighed in, releasing a letter to PM May which called for a deal that would allow their members to continue to work across the EU as they do now, with free movement and mutual recognition of qualifications. It warned against trying to do separate deals for services and manufacturing, sectors it described as “inextricably linked.” Last month, Airbus then BMW warned that they may pull investment out of the UK, the first major companies to break cover and spell out the full implications of the lack of clarity on Brexit.
On the trade spat story, there was nothing major to further worry investors. President Trump announced that he is taking measures to prevent China Mobile entering the US market which as a news event, hardly caused a flicker in the markets. Overall markets appear a little calmer this morning after the major US indices closed higher overnight with the Nasdaq 100 leading the charge at 0.81% of gains. Markets also took some cheer from the People’s Bank of China Governor stating that the country aimed to keep the Chinese yuan at its equilibrium. The yuan along with Chinese equity markets had come under significant pressure over the course of the recent tariffs threats.
All in all, we have another quiet day for economic data with US Durable Goods Orders being the highlight. So again, we expect these political stories to dominate for now during the thinner summer markets, especially in the build up to tomorrow’s major 4th July holiday in the US.