WAITING ON THE BOE

The dollar's latest spurt softened safe havens such as the yen, with the dollar adding 0.31 percent to 110.71 yen JPY=. 

It also firmed 0.45 percent against a basket of currencies to 95.484 .DXY, hitting an 11-month top and sending the euro EUR= down to a three-week low of $1.1500.

Sterling GBP=D4 was at seven-month low of $1.3108, having made only a fleeting recovery after Britain's Prime Minister Theresa May won another crucial Brexit vote in parliament.

The Bank of England holds a policy meeting later in the session, but not a single analyst polled by Reuters expects a rate hike and some are getting cold feet about a rise in August given recent soft economic data.

While the European Central Bank has signaled an end to bond-buying, it also pledged to keep rates low past next summer, and the Bank of Japan shows no sign of unwinding its stimulus.

Switzerland’s central bank kept its rates deep in negative territory on Thursday and warned that risks to the economy were rising amid all the trade war noise.

Ahead of Friday’s meeting of oil producers in Vienna, Saudi Arabia is trying to convince fellow OPEC members of the need to pump more oil, according to sources familiar with the talks. Iran on Thursday signaled it could be won over to a small rise in output, potentially paving the way for a deal. 

Benchmark Brent crude LCOc1 fell $1.56 a barrel to a low of $73.18 before recovering slightly to $73.34, down $1.40, by 0850 GMT. U.S. light crude CLc1 was $1.00 lower at $64.71.

Sterling falls to lowest against dollar since November

European Stock Markets

The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy. 

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede and the economy shows signs of prolonged weakness.

Renewed concerns about whether Britain can secure the Brexit deal it wants have also impacted the currency.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

Investors are only pricing in a one-in-three chance of the Bank of England raising borrowing costs in August, the next time it updates its economic forecasts.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and at GMT 1515 on Tuesday traded up 0.3 percent at 87.12 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with the European Union after it leaves the EU in March 2019 have undermined sentiment towards the pound ahead of an EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Pound slides to lowest since November against rallying dollar

European Stock Markets

The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy. 

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede, the economy shows signs of weakness and worries about whether Britain can secure the Brexit deal it wants reemerge.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and on Tuesday traded flat at 87.31 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with Europe after Brexit have hit sentiment towards the pound ahead of crucial EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Sterling trades near 2018 low on Brexit uncertainty

European Stock Markets

The pound traded near a five-month low of $1.33 on Friday, weighed down by worries over Brexit and signs of sustained weakness in Britain’s economy. 

Sterling had been one of the best-performing currencies in 2018, but weak economic data and a recent surge in the dollar have erased all of its gains for this year.

Markets have radically scaled back expectations for when and how much the Bank of England will raise interest rates as economic growth slows. Data on Friday showed GDP grew just 0.1 percent in the first quarter, keeping the pound under pressure.

Barclays, in a note to clients, cut its growth forecast for 2018 to 1.3 percent from 1.4 percent.

At 1430 GMT, the pound was down 0.5 percent at $1.3318 as the dollar gained broadly.

Weak construction and retail data mean investors are now only pricing in a one-in-three chance of the BoE raising borrowing costs in August, the next time it updates its economic forecasts.

Meanwhile, concerns are growing about the sort of relationship Britain can agree with the EU before it exits the bloc in March 2019 and that is also impacting sterling.

BoE Governor Mark Carney said on Thursday the central bank could pump more stimulus into

Britain’s economy if this year’s Brexit negotiations resulted in a bad deal.

He said two days earlier that the Brexit vote has cost each UK household 900 pounds .

There is a one-in-five chance of a disorderly Brexit.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall toward $1.3300 in the short term.

Sterling edged below day's high with persistent concerns over Brexit

European Stock Markets

Sterling edged below the day’s highs on Thursday after upbeat British retail sales data, with traders wary of pushing the currency too much further given persistent concerns over Brexit negotiations. 

The British currency extended gains to rise half a percent on the day at $1.3419 compared to $1.3385 earlier as retail sales volumes rose by 1.6 percent from March, well above the median forecast for a monthly 0.7 percent increase in a Reuters poll of economists.

But it subsequently trimmed early gains to stand 0.2 percent up on the day at $1.3371.

The currency’s gains on Thursday marked a reversal of fortunes from Wednesday when it fell to its lowest levels since mid-December on a slower than expected pick up in inflation.


Sterling’s gains were also magnified by the dollar’s weakness which was down a quarter of a percent against a basket of its rivals after U.S. President Donald Trump called off his planned June 12 summit meeting with North Korean leader Kim Jong Un.

However, on a trade-weighted basis, sterling was trading near its lowest levels in two weeks at 78.67.

Britain will end its implementation period with the European Union after Brexit in December 2020, a government source said on Thursday, denying a media report that Prime Minister Theresa May was seeking a new transition until 2023.


Market implied expectations for the next rate hike remained unchanged with bond markets pricing in a move by the end of the year with a 33 percent probability of a rate hike by August.

Sterling slumps to its lowest since December as dollar strengthens

European Stock Markets

Sterling slumped to its lowest since December on Monday as the dollar surged and investors prepared for data this week that could determine whether the Bank of England raises interest rates in 2018. 

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent on Monday and fell below $1.34 for the first time since December , before trimming some of its losses.

The currency was headed for its biggest daily loss in three weeks as the dollar rose broadly on reports that the United States was putting its trade war with China “on hold”.

The pound also fell versus the euro, sliding 0.2 percent to 87.64 pence.

Important data on the British economy is due out this week including inflation on Wednesday and gross domestic product on Friday.

The figures will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

Risks around the sort of post-divorce relationship Britain can agree with the EU weighed heavily on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.

Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party reportedly are bracing themselves for a snap autumn parliamentary election amid fears that the Brexit deadlock will become insurmountable.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall towards the $1.3300 level in the short term.

Pound falls to five-month lows as dollar soars

European Stock Markets

The pound fell to a five-month low on Monday as the dollar surged and investors prepared for data that could determine whether the Bank of England raises interest rates this year.

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent to $1.3412, its lowest since Dec. 28, as the dollar soared on reports the U.S was putting its trade war with China “on hold”.

Important data on the British economy due this week, including inflation and gross domestic product, will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.


Risks around the sort of post-divorce relationship Britain can agree with the EU weighed on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.


Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, Tory MPs reportedly are bracing themselves for a snap general election this autumn amid fears the Brexit deadlock will become insurmountable.

In notes to clients, analysts at CMC Markets and Commerzbank both predicted the pound would fall toward the $1.3300 level in the short term.

U.K. stocks fall from record as AstraZeneca, oil stocks decline

European Stock Markets

U.K. stocks on Friday pulled back from a record close, as shares of AstraZeneca declined following the heavyweight drug maker’s earnings report, and as shares in oil companies took a break from their recent rally.

What are markets doing?
The FTSE 100 index UKX, -0.24%  dropped 0.2% to 7,775.70, on track to break a three-day winning streak. On Thursday, that win streak helped push the London benchmark to an all-time closing high, after a solid run that was boosted by a weaker pound and a rally in oil stocks.

For the week, the FTSE 100 was on track for a 0.6% gain, which would mark an eighth straight week of advances. That would be its longest weekly winning run since July 2005, when the index also rose for eight consecutive weeks.

The pound GBPUSD, -0.1332%  on Friday fell to $1.3512 from $1.3516 late Thursday in New York.
What is driving the market?

U.K. investors paused for breath after pushing the blue-chip index to a record on Thursday. They also monitored geopolitical risks and the latest developments in the Brexit discussions.

On the Brexit front, U.K. Prime Minister Theresa May denied reports earlier this week that Britain was looking to stay in the EU customs union after Brexit. Instead, her cabinet agreed to a “backstop” proposal that would align the U.K. with EU tariffs after 2020 to avoid a hard border with Ireland. The backstop plan would only be needed if the U.K. was unable to agree on a separate customs deal with the EU, which would raise prospect of a hard border in Ireland, according to the BBC.

On the global scene, U.S. President Donald Trump somewhat dashed hopes of a trade deal between the U.S. and China. At a press conference on Thursday, Trump said he doubts that the negotiations will succeed because “China has become very spoiled” on trade.

With no major economic reports on deck in the U.K. on Friday, traders instead focused on the latest corporate news.
Stock movers

Shares of AstraZeneca PLC AZN, -2.62% AZN, -0.16%  dropped 1.8% after the pharma giant reported core earnings that missed forecasts. Core operating profit — the company’s preferred measure, which strips out one-time gains and impairments — fell to $896 million from $1.67 billion a year ago.

J Sainsbury PLC SBRY, -0.03%  rose 0.2%. The gain came even as the U.K. competition watchdog said it is considering investigating the proposed merger between J Sainsbury PLC and Walmart Inc.’s WMT, -1.90%  British arm, Asda Group Ltd.

Energy companies were also falling after scoring multi-year highs on Thursday on the back of a continued advance in oil prices. Shares of BP PLC BP., -0.33% BP, +1.03%  , which closed at an eight-year high on Thursday, dropped 0.3% on Friday, while Royal Dutch Shell PLC RDSB, -0.48% RDS.B, +1.61%  , which scored an all-time high on Thursday, fell 0.5%

Sterling rallies vs dollar, euro on EU customs union report

European Stock Markets

Sterling briefly rallied more than half a percent versus the dollar on Thursday after a media report that Britain would tell Brussels it was prepared to stay in the European Union’s customs union beyond a transitional arrangement. 

British cabinet ministers are deadlocked over a future deal with the block and the Telegraph newspaper said Britain would tell Brussels it was prepared to stay in the customs union beyond 2021, sending the pound to a two-day high.

Sterling later relinquished most of its gains however. Prime Minister Theresa May denied she was “climbing down” from her position and said Britain would be leaving the EU customs union as she has previously outlined.

At GMT 0820 sterling was up 0.2 percent at $1.3525 and traded up 0.1 percent versus the euro at 87.37 pence, close to a three-week high of 87.15 hit earlier in the session.

The pound’s jump suggests the currency remains vulnerable to Brexit negotiations that have dominated British politics since a 2016 referendum, even as Britain’s economy has shown signs of strengthening.

Riechelt said that the risk of a hard brexit remained, though, and that the pound could face downward pressure because the EU would likely meet the proposal with scepticism.

Britain is due to leave the EU in March next year although it has secured a transitional arrangement to keep its trade ties with the bloc unchanged until the end of 2020, as long as a permanent deal can also be reached in the coming months.

Cabinet ministers have discussed keeping the UK tied to EU customs rules for longer as a way of avoiding a hard Irish border.

Other analysts downplayed the importance of the customs union discussions for the pound.

Sterling drops back towards 2018 lows on Brexit worries

European Stock Markets

Sterling fell on Wednesday back towards its lowest point of the year against the dollar amid fresh worries about Britain’s Brexit negotiations and relatively modest UK wage growth.

The British government said on Tuesday it would publish detailed plans for its future relationship with the European Union next month in an attempt to break the deadlock in Brexit negotiations.

Divisions within the government about what the relationship should look like, and repeated complaints from EU officials that Britain has not been clear on what it wants, has left investors convinced Brexit talks remain a real risk for the pound less than a year before Britain is due to leave the bloc.
 On Tuesday, UK data showed British employers hired many more workers than expected in early 2018, a tentative sign that the economy’s weak start to the year may be temporary.

However, wage growth data remained mixed, with annual growth in earnings, excluding bonuses, at 2.9 percent in the three months to March, as expected in the Reuters poll.

Sterling fell 0.1 percent to $1.3490, not far from the 2018 low reached on Tuesday of $1.3452.

A rally in the dollar and sliding expectations for British interest rate rises have caused what had been one of the best performing major currencies to give up all its 2018 gains.

Versus the euro, the pound declined 0.1 percent to 87.735 pence per euro.

Sterling steadies before BoE rate decision

European Stock Markets

The pound held steady on Thursday near four-month lows as traders shrugged off data showing industrial output barely rose in March and readied for a Bank of England policy decision expected to keep interest rates on hold. 

Sterling has tumbled in recent weeks from its post-Brexit vote highs of close to $1.44 to below $1.35, erasing its gains against the dollar for the year as investors unwound bets on a rate increase and

British economic data came in worse than expected.

Data published on Thursday showed industrial output inched up by 0.1 percent month-on-month in March, the same pace as in February and slightly below the consensus for growth of 0.2 percent in a Reuters poll of economists.

That confirms the view of a British economy struggling to find momentum during a difficult start to the year.

Almost all analysts and economists expect the BoE to leave rates unchanged when it announces its decision at 1100 GMT.

The pound slipped 0.1 percent to $1.3538 versus the dollar, unchanged from before the data was released.

It fell 0.2 percent to 87.670 pence per euro against a broadly stronger single currency.

RBC chief currency strategist Adam Cole noted that forwards markets still attached a close to 100 percent probability of a rate hike at some point this year.

The language in the BoE’s commentary on Thursday’s decision was likely to signal “that a rate hike at some point this year remains on the table.”

Sterling languishes at near four-month low as it waits BoE hike decision

European Stock Markets

The British pound languished near a four-month low on Wednesday as the dollar rallied and traders sold sterling the day before a Bank of England meeting where interest rates are expected to be kept on hold.

UK economic data have taken a turn for the worse in recent weeks, causing traders to almost discount the possibility of an interest rate hike on Thursday.

In addition, worries about conflict within the British government over what its relationship with the European Union should look like after Brexit have hurt sterling.

Traders will scrutinise Thursday’s decision for any indication of whether a rate hike is still likely this year.

A narrow vote split among the nine-member Monetary Policy Committee, led by Governor Mark Carney, could prepare markets for a hike in August.

But analysts said the BoE could find it challenging to explain its future approach to a market that has within a month cut its expectation of a May hike from 90 to around 10 percent.

However, analysts at ING said in a note that the pound’s fall in recent weeks looked overcooked, and that they remained bullish for the medium-term.

The pound was down 0.2 percent on Wednesday at $1.3520, close to Tuesday’s lows — its weakest since Jan. 11.

Sterling is at risk of losing its status as one of the best performing G10 currencies this year, partly because investors have recently started betting on the dollar rising on the strength of higher interest rates.

Data released late last week showed investors had cut their net long positions in the pound over the past fortnight by the biggest amount since March 2017, although net long positions remain near a four-year high.

Tensions within Britain’s governing Conservative Party over how to agree terms of exit from the European Union have also re-emerged as a political risk for the pound.

Foreign Secretary Boris Johnson described as “crazy” a proposed customs partnership that is believed to be Prime Minister Theresa May’s preferred option for relations with the EU after Britain leaves the bloc.

Against the euro, sterling gained 0.1 percent to 87.510 pence as the stronger dollar pulled the single currency down across the board.

Sterling slides as investors trim their pound holdings

European Stock Markets

Sterling slipped on Tuesday as investors continued to trim their pound holdings before a Bank of England meeting on Thursday, when the central bank is expected to keep interest rates on hold, and as worries about Brexit negotiations resurface. 

The pound, which has fallen heavily in recent weeks on expectations the BoE would not, as earlier believed, tighten monetary policy because of a relatively weak economy, fell 0.4 percent to $1.3503 versus the dollar.

Sterling is off the low of $1.3487 it hit on Friday, which had erased all of the 2018 gains for what had been one of the best performing G10 currencies, but downward selling pressure remains.

Positioning data released late last week shows investors have cut their net long positions in the pound over the past fortnight by the biggest amount since March 2017, although net long positions remain near a four-year high.

David Madden, analyst at CMC Markets, said the collapse in expectations for a BoE hike when it meets on Thursday, from a 80 or 90 percent chance a month ago to around 10 percent today, was the primary reason for sterling’s weakness.


Against the euro, sterling fell 0.1 percent to 88.065 pence.

Tensions within Britain’s governing Conservative party over how to agree terms of exit from the European Union have also re-emerged as a key political risk for the pound.

Prime Minister Theresa May faces a tough battle as her party attempts to steer flagship legislation through Britain’s upper house of parliament.

Her foreign minister, Boris Johnson, has described as “crazy” a proposed customs partnership that is believed to be May’s preferred option for relations with the EU after Britain leaves the bloc, underlining deep divisions within her top team about future ties with the EU.

ING analysts said in a note that while the focus would be on the passage of Brexit legislation, sterling against the euro remained steady for now.

Chance of May BoE rate hike down but not out

European Stock Markets

Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month - but economists say it would be wrong to rule out an increase. 

Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.


Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting.

In March, two members of the BoE’s Monetary Policy Committee voted for a rate rise and economists were confident an MPC majority would back a rise to 0.75 percent in May.

This all changed on Thursday when Carney alluded to “mixed data”, differences of opinion on the MPC and the possibility of rate rises later in the year in a BBC interview.

Sterling tumbled by more than a cent, short-dated bond yields recorded their biggest fall this year, and financial markets chopped the odds on a May rate rise to less than 40 percent from 65 percent.

Investors should not lose track of the bigger picture, said Mike Amey, a fund manager at PIMCO, the world’s largest bond investor, as market pricing of the chance of a May move crept back up to around 50 percent.

PIMCO expects BoE rates to rise once or twice both this year and next - compared with the single rate rises in November 2018 and August 2019 factored in by markets.

April purchasing managers’ surveys from British businesses will probably be more important for the BoE’s May decision than the weather-affected preliminary first-quarter gross domestic product figures on Friday, Amey added.

Overall, the economy has held up better than most economists expected after the June 2016 Brexit vote, despite lagging the global rebound. And the high inflation that hit consumer demand last year is slowing as sterling recoups some of its losses.

Unemployment has fallen to a 43-year low of 4.2 percent, and a record proportion of Britons are in work.

Komileva said she saw little case to delay a rate rise.


The BoE’s signals on rates felt more arbitrary than those of the U.S. Federal Reserve or the European Central Bank, she said.

Fed policymakers make individual projections for rates while ECB President Mario Draghi regularly offers hints on policy.

This is not the first time markets have been jolted by Carney. In 2013 the BoE linked policy to the jobless rate, only for unemployment to fall far faster than policymakers forecast. And in mid-2014 and mid-2015 Carney suggested rates might rise sooner than markets expected - only to backtrack both times.

Just two months ago, Carney had said he felt he could stop giving hints on rates because markets understood the BoE’s thinking well enough to draw their own conclusions.

After that, Brexit worries eased as Britain secured an outline Brexit transition deal until the end of 2020, and economists said signs of economic weakness were the result of freak snow storms, adding to the sense that another rate hike was coming.

The missing piece of the picture for the BoE is wage growth, the key factor for inflation pressure. At an annual 2.8 percent, wage growth is roughly in line with BoE expectations but remains weak by historic standards, especially given low unemployment.

Former BoE policymaker David Blanchflower thinks the central bank should hold off raising rates and look harder at the number of people in part-time work but who want to work longer hours, suggesting wages are unlikely to pick up sharply.

The BoE might feel it has more time to see if wages rise after a bigger-than-expected fall in inflation in March. Furthermore, sterling’s recent recovery should curb inflation pressures.

Even Michael Saunders - who voted for a rate rise last month and looks set to do so again - has said the muted response of wages to the fall in unemployment defied simple formulae.
For now, economists are still trying to gauge whether Carney’s comments were a warning that rates are unlikely to rise in May.

Alan Clarke at Scotiabank, who has dropped his forecast of a May rate rise, said they were probably intended to stop MPC members feeling they were committed to a hike next month.

Komileva said they might have the effect of dissuading wavering MPC members from backing a rate rise for fear of wrong-footing markets again.

But HSBC economists Simon Wells and Elizabeth Martins - who for now are holding with their view of a May rate rise - said they would take the comments with a grain of salt.

Sterling falls to five-week low on dollar rebound, Brexit nerves

European Stock Markets

Sterling fell on Tuesday to its lowest since mid-March, its sixth consecutive daily fall, as the dollar rebounded and investors worried about the performance of the British economy.

April has historically proved to be supportive for the pound because of a seasonal rise in capital inflows into Britain from foreign companies paying UK shareholders dividends.

But last week, sterling fell almost 1.7 percent on weaker-than-expected data and cautious comments from Bank of England Governor Mark Carney that slashed market expectations for a May rate hike.

The pound continued to languish on Tuesday and fell 0.1 percent to as low as $1.3919, its lowest since March 19, in part because of a broadly stronger dollar, analysts said.

Against the euro, the pound recovered and rose 0.1 percent to 87.505 pence.

Analysts said they would watch gross domestic product figures due later in the week for signs of how the economy was holding up and whether it pointed to a BoE ready to hike rates.

A resurfacing of worries about Brexit also sapped at the pound, which has been one of the best performing major currencies in 2018.

Britain’s upper house of parliament handed the government its third defeat over Brexit in less than a week on Monday, voting down plans not to retain EU rights in national law before Britain leaves the bloc.

The cross-party vote was technical and non-binding but shows the deep divisions over Brexit across the Houses of Parliament and adds to speculation that Prime Minister Theresa May’s leadership could come under threat.

“There has been a clear pick-up in news reports over the difficulty the government faces in following through on their plans to leave the EU customs union,” MUFG economists said in a note, adding that the impact on the pound so far appeared limited.

The market is now pricing in a less than 50 percent chance of a rate hike at a May 10 BoE meeting, down from more than 80 percent a fortnight ago.

Daily Briefing: Lords ready Brexit challenge to May

European Stock Markets

Britain's House of Lords is expected to inflict an embarrassing defeat on Theresa May's government today as it challenges her refusal to remain in a customs union with the European Union after Brexit. 

The bigger question is whether that act of defiance encourages more pro-EU rebels in her own party to make a stand when the proposed amendment comes down to the lower house, where she has a slender majority. That is by no means a given, despite the fact it would require only about seven Conservative MPs to back the amendment.

Still, hopes in financial markets for a softer landing on Brexit than once feared are among the factors that have been boosting sterling against the dollar in recent months.

German unions and employers meeting well into the night yesterday secured a deal to boost the pay of more 2 million public sector workers by some 7.5 percent over two-and-a-half years. That breaks down to an initial 3.19 percent raise this year followed by a 3.09 percent increase from next April and the rest in 2020.

Along with the package already offered to steel and carworkers, these are some of the biggest wage increases for German workers in years and could start to boost spending in Germany’s increasingly consumer-led economy. That in turn would encourage the ECB it is on the right track to start tightening its policy this year as planned.

French railworkers embark on the latest round of strikes today, a day after parliament backed in first reading the government's plans to end the SNCF rail company's monopoly and curtail the special status of its employees. Finance Minister Bruno Le Maire said on Monday the strikes and other industrial actions were starting to take a toll in sectors such as hotels and tourism but that it was too early to assess the overall impact on the economy.

This is the fourth set of strikes since they were called - Emmanuel Macron will be watching closely for signs the participation is ebbing.

After weeks of sound and fury on trade and politics, world markets returned to brass tacks and are again focusing squarely on incoming economic numbers and corporate earnings. Flattered in part by U.S. tax cuts, the corporate numbers at least are pretty impressive.

Goldman Sachs hailed its financial trading division as the return of market volatility marked a blowout first quarter for the lender, while recent anxiety about the giant tech and internet firms eased somewhat as Netflix's impressive results sent its stock surging almost 10 percent to record highs. 
With 10 percent of the S&P500 already reported, the already punchy aggregate annual growth estimate for the whole 500 is creeping higher toward 20 percent.

Morgan Stanley and American Express are among those reporting later on Wednesday. U.S.
 economic numbers are also injecting a little more optimism, with both industrial output and housing starts for March beating forecasts and prompting a rebound in the recently-ebbing U.S. economic surprise index.

The S&P500 ended up more than 10 percent on Tuesday, with the tech-heavy Nasdaq up almost 2 percent. The Vix volatility gauge slipped back  below 15 percent to its lowest level in more than a month.

Asia’s main bourses all advanced in the slipstream, with benchmark indices in Japan, South Korea and Hong Kong all adding 1 percent or more. Even Shanghai stocks rallied after four straight days of losses as the People’s Bank of China’s surprise cut in bank reserve requirements on Tuesday helped offset ongoing U.S. trade war concerns and related problems for firms such as telecoms equipment make ZTE.

MSCI’s all-country index of world stocks is now firmly back in the black for 2018 so far with the International Monetary Fund on Tuesday reaffirming is robust 3.9 percent world economic growth forecast for this year and next.

While European economic numbers continue to underwhelm relative to consensus forecasts, there have been other positive twists this week to underpin equity markets there – not least a deal by Italy’s Intesa Sanpaolo to sell some $13 billion of non-performing loans for almost 30 cents in the dollar, seen by many as a turning point in the long running saga of ridding Italian banks of deadweight bad debts.

The gap between U.S. and German government borrowing rates, meanwhile, widened further. The 2-year gap is at its widest since 1989, while the 10-year gap is its highest since late 2016 at 234 basis points.

Elsewhere, the dollar steadied after early week losses. Sterling’s surge to its highest level since the month of the Brexit referendum was tempered as strong UK jobs and wage figures on Wednesday were still short of some expectations and traders await today’s release of UK March inflation report for more clues about the now widely expected Bank of England interest rate rise next month.
Brent crude oil was firmer above $72.

The British Pound Rose

The British pound rose to $1.4355 against the US dollar on Tuesday, hitting its highest level since the Brexit referendum in June 2016.

The currency was supported by hopes of a better Brexit deal and expectations of a central bank rate hike.

"The sterling bulls are charging ahead of the crucial UK wages data which is anticipated to come in strong," said Stephen Innes APAC head of trading at OANDA.

"With positive vibes from the Brexit negotiations suggesting more hawkish policy room for the BOE, a robust wages data will provide the boost to May rate hike expectations and will underpin GBP sentiment."

At midday, the S&P/ASX 200 is trading 7.7 points higher at 5,849, helped up by the miners.

Mining companies are among the best performers on the market today.

AMP has dropped 3.4 per cent as the royal commission revealed it lied to the corporate watchdog.

Sterling pauses on soft data

European Stock Markets

Sterling trimmed gains on Wednesday after British manufacturing output fell unexpectedly in February, its first drop in almost a year, adding to signs the economy may have slowed in the first quarter. 

With bets on sterling at their most bullish in years according to positioning statistics, and forecasters predicting more gains, the lacklustre data offered some investors an opportunity to take profits into a recent rally.

The British currency has been one of the best performing this year with gains of more than 5 percent against the dollar. It hit a post Brexit-referendum vote high of $1.4346 in late January and is currently trading roughly 1 percent below those levels.

Sterling has been supported by expectations that the Bank of England will raise interest rates in May and comments by policymaker Ian McCafferty on Tuesday along with strong housing survey data on Monday offered further encouragement.

A Brexit transition deal, secured by Prime Minister Theresa May in March, has also pushed back the risk of economic disruption linked to Britain’s EU departure, also helping sentiment towards sterling.

The British currency has also chalked up impressive gains against the euro with the pair holding near a three-week low around 87 pence.

Kit Juckes, an FX strategist at Societe Generale in London, said the pound’s current valuation was cheap compared with much of the last two decades, and he expects it to strengthen to as much as 84 pence against the euro.

A trade-weighted index of the British currency rose to its highest level since the June 2016 Brexit vote.

Wednesday’s data, along with figures for overseas trade, also showed another sharp drop in construction output, against expectations of a small rebound after a severe downturn in January.

Bank of England mustn't dally over next rate hike: McCafferty

European Stock Markets

The Bank of England should not delay raising interest rates again, one of its top policymakers said, pointing to the possibility of faster pay rises and the recent strong pick-up in the world economy. 

Ian McCafferty told that after lagging behind inflation for much of the past decade, wage growth might prove stronger than most of his colleagues thought, adding to pressure on inflation that is running above the BoE’s target.

“We shouldn’t dally when it comes to tightening policy modestly,” McCafferty, one of two members of the nine-strong Monetary Policy Committee who voted for a rate rise last month, said in an interview.

The BoE raised rates for the first time in more than a decade in November, saying that Britain, while growing more slowly than other rich countries because of the impact of the 2016 Brexit vote, was more prone to inflation than in the past.

Three months later, in February, the BoE said it would probably need to raise rates a bit earlier and by somewhat more than it had previously signaled, pushing up the value of sterling and leaving investors betting on a rate hike in May.

McCafferty said he could not be certain about whether to vote again for a rate rise until May’s policy meeting, but there had been no data or Brexit developments so far to make him think he was wrong in March to vote to raise rates to 0.75 percent.

The former chief economic adviser to the Confederation of British Industry has been in the minority of BoE policymakers pushing for a rate hike previously in the past four years.

Speaking in his office in the BoE on Monday, adorned with books on the economy and a framed page of The Times newspaper with a headline about inflation, McCafferty said that as well as the boost from the world economy’s strong recovery, he thought there was now no slack left in Britain’s labor market.

Unemployment at its lowest rate since 1975, skill shortages and signs that employers were resorting to higher wage offers to lure staff from rival firms or stop them from leaving would also create inflation pressure.

And the “jury is still out” on whether the inflationary hit from the fall in the value of the pound after the Brexit vote in 2016 would fade as quickly as expected, he said.

While the BoE had been wrong in the past about wages finally gaining momentum, labor market surveys so far this year showed that the recent recovery in the headline rate of growth of pay to nearly 3 percent looked more sustainable this time, he said.

Often called one of the BoE’s most hawkish policymakers, McCafferty said there had been a case for following up November’s rate move with another hike as early as February.

But he held off to avoid surprising households who had been told by the BoE that it plans to raise rates only gradually.

McCafferty said he did not think the BoE should provide more detailed guidance on the future level of rates, such as the individual forecasts given by U.S. central bankers.

Typically the BoE indicates its thinking by giving forecasts for inflation based on rates staying unchanged and based on the path expected by financial markets. If the BoE forecasts above-target inflation, that shows rates may need to rise.

Last month Gertjan Vlieghe, a fellow MPC member, was unusually specific when he said he expected rates to rise by 0.25-0.50 percentage points a year for the next three years.

On Brexit, McCafferty said British exporters remained in “a sweet spot”, helped by the weakness of the pound while concerns that they might lose business with supply chain customers elsewhere in the EU had so far proven overdone.

But there were signs that British companies were wary about making long-term investments, and potential Brexit stumbling blocks would remain, he said. 

Sterling set for best quarter since year before Brexit vote

European Stock Markets

Sterling edged down on Thursday as end-of-quarter portfolio rebalancing by investors outweighed encouraging economic data, but the currency is still set for its best quarter against the dollar in almost three years. 

Hopes of a transition deal on Britain’s departure from the European Union - which was eventually agreed earlier this month - and growing expectations that the Bank of England could soon raise interest rates have propelled the pound this year to its highest since the June 2016 Brexit referendum.

Sterling is up roughly 3.9 percent versus the dollar this quarter, its best performance since mid-2015. Against the euro it has risen 1.4 percent since January, and is heading for its best quarter since 2016.

Some investors believe sterling’s good run can extend into the next quarter.

On Thursday, the end-of-quarter flows by investors overshadowed data showing a narrower UK current account gap and an upgrade in fourth-quarter business investment.

Dollar strength and the sense among investors that the British currency may have got ahead of itself have undermined the pound’s rally this week, and some traders say better news is needed next quarter to justify another leg higher.

The pound lost 0.3 percent versus the dollar to $1.4030, bringing week-to-date losses to 0.7 percent.

“On the whole, Brexit concerns have taken something of a backseat since last week and I think markets are focused on data.”

Data on Thursday upgraded Britain’s fourth-quarter business investment to 0.3 percent from flat earlier. Fourth-quarter GDP growth was left unrevised at 0.4 percent while the current account deficit was revised down sharply.

Versus the euro, the pound fell 0.2 percent on Thursday to 87.64 pence per euro.