Good morning,
Referendum Watch – 22 days to go…
It was only yesterday morning that we warned of additional volatility in GBP markets as we got closer to the vote although I have to admit we did not see it hitting this hard so quickly. Two polls by ICM in collaboration with the Guardian both showed a 45-42 lead for the Leave camp that rose to 52-48 with ‘don’t knows’ taken out.
With the last ICM poll showing a 10 point lead for Remain only a few weeks ago and now a 4 point lead for Leave we have to think that something is up with one of these numbers; polls don’t move that quickly. Currencies certainly do however and sterling lost 0.6% almost instantaneously across the board and ended the day lower against every G20 currency.
Scottish Fiction
The parallels here with the Scottish referendum are stark. 12 days before the vote on Scottish independence a Yougov/Sunday Times poll put the ‘Yes’ camp in the lead for the first time in the campaign. Mayhem ensued but the most telling thing was the reaction of the ‘No’ campaign; bending over backwards to appease Scottish voters with extra spending if they pledged to stay.
It is harder for the Remain camp to do something about this change however as Cameron must instead find EU reforms to pull out of his magic hat and that simply will not happen following the negotiations in February. There is no magic hat.
The question remains whether this is THE poll that galvanises Remain? That increases their turnout to prevent what their supporters believe to be the unthinkable? A little over 3 weeks remains until the vote and the pressure on sterling has just been taken up a notch. Today’s manufacturing PMI is unlikely to ease the pressure with consensus expectations that the sector will have contracted for the 2nd month in a row.
Aussie growth beats expectations handily
Sterling has not been the only mover of the session with AUD flying high following a much stronger than expected GDP report. QoQ the Australian economy grew by 1.1% (expected 0.8%) with YoY growth expanding by 3.1% (expected 2.8%). Growth does seem concentrated in mining and resource exports with consumption and household spending noticeably weaker. There are not many ‘wrong types of growth’ but Australian GDP predicated on resource exports is not what the Reserve Bank of Australia is looking for at the moment and therefore there is good reason to suggest that those looking for rate cuts in Australia will be happy to continue that fight.
Manufacturing PMI day
Overnight manufacturing news from China has once again be poor with the official manufacturing PMI coming in at50.1 versus 50 expected and non-manufacturing PMI hitting 53.1 against 53.5 last month. With China’s release out of the way we focus on Europe and the US. Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00 with the UK number due at 09.30.
For Europe the focus has to be just how weak inflationary pressures within the manufacturing sector really are while in the US we are looking for a rebound from recent manufacturing sluggishness.
Japan delays VAT hike
Prime Minister Abe confirmed this morning that the VAT rise in Japan will be delayed until late 2018 and will outline his plans at a press conference due at 10am London time. USDJPY remains range bound.
Have a great day.