Good morning,
Referendum Watch – 14 days to go
The polls open in a fortnight in the UK referendum and I don’t think I’m the first, nor will I be the last, to say that I wish we could get it all over and done with. Once again yesterday there was little new insight as to voting intentions as no polls were released with GBPUSD trading in an 80 pip range through the UK session. It was pretty quiet.
In fact, the Leave campaign may have had its best day economically yesterday as both UK industrial production and the latest National Institute of Economic and Social Research’s GDP estimate for the 3 months to May both beat estimates. The former was driven higher by a surge in pharmaceutical exports and utility demand courtesy of the unseasonably cool spring.
The NIESR, much like us, believe there to be specific uncertainties around near-term outlook, most notably outcome of EU vote, but we are expecting an acceleration of growth fundamentals through the 2nd half of the year.
Kiwi not so flightless
New Zealand dollar has risen to its highest level in 12 months overnight following the latest RBNZ meeting that saw rates held at 2.25% as was widely expected and inflation expectations revised higher. Carry trades, borrowing in low interest currencies to invest in high interest currencies, have been less than reliable in recent volatile market conditions but interest rate differentials between a NZD that could see higher inflation and a dollar still on the back foot following last week’s disappointing jobs report are attractive.
Fears over bubble-like conditions in the housing market in New Zealand precluded a cut in interest rates that some indicators, particularly those showing continual falls in dairy prices, New Zealand’s most valuable export market, seemed to justify.
AUD has also been bid up in the Asian session, more in lockstep with its Kiwi counterpart than anything strongly local. We are expecting risk in markets to pressure the Aussie dollar into the weekend although market sentiment is for delaying Fed rate rises and therefore easier conditions for now.
The Day Ahead
The main headlines of the day are likely to come from a European Economic Forum meeting taking place in Brussels this morning. Mario Draghi, ECB President, is set to speak and is expected to lay out a similar plan to last week’s ECB meeting; time is needed for policy to hit its mark and be seen in the wider macroeconomic data, help from politicians in the form of greater fiscal spending to take some of the burden off the central banks is also required. This is nothing new of course but there is little else he can do given the higher costs and the falling impact of monetary policy.
US initial jobless claims are due at 13.30 and should be able to show us just how wrong, if at all, last week’s US labour market report really was.
There are no Referendum opinion polls scheduled for today.
Have a great day.