Market News & Insights
13 June 2017

Vive la Euro

Yesterday provided markets with some political clarification across Europe. First, we had Theresa May who received the backing from her party at a meeting of Conservatives members, where she promised to clear up “the mess” she had made on Thursday. May told lawmakers she would continue as Prime Minister for as long as they want. The next few days will be crucial for the Tory leader if she is to cement her position, however she may well be aided by the fact that no other member wants the job, with her main rival Boris Johnson, tweeting his support for her. Later today she is set to hold talks with the DUP leaders and discuss terms for backing her minority government.

Over in France we saw President Macron’s team of largely unknown candidates poised to sweep a majority in parliament. The La République en Marche, won almost a third of votes in the first round of parliamentary elections, and is now set for an overwhelming majority in parliament. There was more positive news for the Eurozone in Italy, where the anti-euro Five Star Movement suffered a major voting setback in local elections, raising serious doubts about whether it is capable of seizing power in a general election due by next year. The political setbacks for the anti-euro movements will come as relief to the ECB and allow them to focus their attentions back to monetary stability matters.

Markets in Europe took yesterday’s outcomes as a positive, with markets across the bourse opening in the green.  Euro also strengthened against the pound in yesterday’s trade with moves towards the .89 level. We have seen resistance at .8860/70 region so we will need to see this level breached and a close above if we are to continue the move higher. EURUSD continues to trade in the 1.12 area, a pull back below 1.1170 opens the door for further falls. We would need to see it breach 1.13 if we are to see a swing higher.

In the US the Fed are widely expected to raise its benchmark interest rate on Wednesday at the conclusion of its two day policy meeting. All things going to plan and markets get their rate hike, attention will quickly turn to the latest quarterly projections on growth, unemployment, inflation as well as the Fed’s latest dot plot. Markets will also be anxious to get a better indication on the timing and details of the reduction of the $4.2 trillion balance sheet.  We’ll discuss this more in tomorrow’s commentary.

Today we have a raft of economic data including UK inflation figures which were released earlier this morning. The headline figure showed inflation rising to a four year high of 2.9 percent. The increase in the figures continues to tighten the squeeze on real earnings which are now falling at the fastest pace in 3 years. The earnings figures which are due tomorrow are expected to show pay to have only risen by 2 percent. Later on in the morning we have German ZEW Survey, while in the afternoon we turn our attention stateside with PPI figures.