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May 2016

Brexit still calling the shots

Published: Tuesday 31 May 2016

  • Brexit still calling the shots
  • US rate hike calls increasing
  • Aussie and Kiwi rate cuts still a possibility

To those who had a three day break last weekend, I hope it was a good one and to those who worked over that period, I feel your pain.
As we start the last day of May and Britain commemorates the dreadful loss of life at the Battle of Jutland (a vivid and gruesome example of losing the battle but winning the fight), we anticipate the political fight ahead as we enter June. The lead up to 23rd June and, potentially the aftermath of that day will be volatile.
The weekend brought all kinds of claim and counter-claim and, as a member of the British public I confess I am as confused by all the statistics and economic 'facts' as everyone else, so I think the vote decision for many will come down to the matters of sovereignty and border controls and perhaps more will hinge on the headline numbers than the detail because I haven't met anyone who trusts the detail that has been hurled at them by both the Leave and Remain camps. We have two televised Q&A sessions this week and plenty of other smoke and mirrors to negotiate, so good luck with all that.
As far as the markets are concerned, that EU membership debate is the driving force for the Pound. The correlation between poll results and the value of the Pound is marked. There is no doubt a 'Leave' win would weaken the Pound initially at least and, by process of elimination, a vote to remain would strengthen Sterling. But a weaker Pound is better for exporters and a stronger Pound keeps inflation down, so there are silver linings whenever you look at these things.
The week ahead holds a significant number of data events, including the Purchasing Manager's Indices from a number of countries, GDP data from Australia which ought to weaken the Aussie Dollar as well as GDP data from Canada which may well do likewise to the loonie. We will also get a monetary report from the BoE tomorrow along with the US Federal Reserve's Beige book; a regional economic statement.  
Thursday is the most interesting day for data; a 'no change' decision is expected from the European Central Bank on the Eurozone interest rate but there is scope for further bond buying plans; not that previous bond splurges have been effective in creating a recovery for the Eurozone. We get a speech from Governor Carney of the BOE and we get Australian trade and retail data which ought to weaken the Aussie Dollar. However, there is a likelihood of further interest rate cuts in Australia (and in New Zealand for that matter) and that will keep the AUD and NZD on the back foot.
The week wraps up with Friday's US employment report which, if the forecasters are right, will increase the calls for a US interest rate hike and that is likely to strengthen the US Dollar. So USD buyers may want to take steps early in the week.
Aside from all this, I love a bit of irony. The Brazilian corruption investigations which have engulfed the government of President Dilma Rousseff, have another victim. He is Fabiano Silveira and his job was to ...yes you've guessed it...fight corruption. He has resigned after recordings which apparently show him trying to derail the anti-corruption investigation went public. These Olympics are going to be interesting.

The secret of my success

A young guy asked a wealthy old man how he made his money.
The old guy said: "When I came out of the army, we had nothing. It was just after the war and everything was still rationed. So one day, I paid a penny for an apple and I polished it until it looked so appetising that I sold it for 2 pence. Then I bought two apples and I cleaned and polished them and sold them for 2 pence each and by the end of that month I had over a Pound. Two months later, I had seven pounds and 4 shillings to my name and I invested that in oil company stock. A year later I was the proud owner of £60 worth of shares."
"Wow," said the young man, "and you built up a portfolio from that?"
"You didn't let me finish," said the old guy. "I used some of those funds to invest in a small caravan, which I rented out in Margate. That was bringing in £2 a week and we were just about to invest in more caravans when my wife's father died and left us £1.2 Million."

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
EUR 10:00 EU: CPI Flash estimate y/y -0.2 -0.1
EUR 10:00 EU: Core CPI Flash estimate y/y 0.7 0.8
EUR 10:00 EU: Unemployment rate 10.2 10.2
CAD 13:30 Canada: GDP m/m -0.1 -0.1
USD 13:30 US: Core PCE price index m/m 0.1 0.2
USD 15:00 US: CB consumer confidence 94.2 96.1

Daily Currency Insight by David Johnson

Daily Currency Analysis with Michael Hart

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