Good morning,
Carney 3 Rees Mogg 0
We thought that Carney may double-down on his warnings of recession in his testimony to the Treasury Select Committee but the way that he, and the other members of the MPC being questioned, came out swinging was a sight to see.
To be fair, the questioning of the Governor and MPC members by those MPs who are actively campaigning for Brexit was pretty poor but comments from Carney that the economy would risk a recession, of turbulence to UK banks and damage to the pound seemed to stabilise sterling. Indeed, the Committee Chair told Carney that, according to the FT, the Bank of England Governor was more likely to be listened to than Merkel, Lagarde or President Obama and the currency markets did just that.
Polling still strengthening for Remain
Separately an ORB poll put the Remain camp on 55 per cent and Leave trailing on 42 per cent, among people who definitely intend to vote. Amongst all voters, the Remain campaign had a 20-point lead, with 58 per cent of voters saying they back the pro-EU campaign. Indeed, our trackers now suggest an 82% chance of a win for the Remain camp although there are a few reasons why that is not higher.
Turnout remains an issue; if it rains on June 23rd which as everybody knows is entirely possible in Britain, then that Remain lead will quickly lessen whilst complacency must also be guarded against so as to not see some tortoise and the hare scenario in the early hours of June 24th.
Sterling has had a good run of things and data aside, unless we see a dramatic reversal in polling intentions the downside may be limited between now and polling day. I’m pretty sure we have seen both the top and the bottom of the range in sterling pairs pre-referendum.
Single currency, many issues
EUR has been a big mover overnight, slipping below 1.12 against the USD and bringing GBPEUR above 1.31 for the first time since Feb 4th. There is an element of fear in the Greek debt negotiations that are ongoing at the moment that despite the familiar dull clang of a can being kicked down the road, that debt relief is still needed within Greece for a sustainable payment path to be enacted. Political risk is also transforming to Europe now; if Brexit is dealt with and does not become policy then the risk focus switches to French and German elections in the next 18 months and the issues of the European migration crisis.
China yuan slips on fixing and data
The Asian session has seen a big move higher in USDCNY following the largest increase in the fix since 2011. This is hardly surprising given the strength of the USD in recent weeks and the movements of less actively monitored Asian currencies such as the THB or IDR. The early release of some private measures of growth have also shown ongoing weakness in manufacturing and business confidence. The only positivity coming out of China may be in the fortune cookies.
The Day Ahead
A lot of the focus today will be on central bank members speaking at various times. Harker, Kashkari and Kaplan of the Fed are due to speak whilst ECB’s Praet, Knot, Villeroy, Linde and Constancio are also due to make comments throughout the session.
Have a great day.