Good morning,
Pound eases off into purdah
After two days of strong Brexit-related gains the pound took a breather yesterday and looks set to do so today with a hefty amount of drift in these markets. Next week we enter June and next month we will have to navigate a plethora of possible risks for global markets; the Fed meeting on the 15th and the UK referendum on June 23rd sit alongside possible action from the Bank of Japan, the continuation of Syrian/Libyan migrant crisis and the ongoing US Presidential campaign.
It stands to reason therefore that traders and investors remain reticent to commit too much to these markets without seeing where these rather large chips fall.
Japan gets little backing for increased spending
The G7 meeting in Japan has ended with little fanfare and a rather weak communique from the leaders. There had been thoughts that the language of the memo may have given Europe and Japan some political cover to further stimulate their economies without it being seen as detrimental to others, but that has not been seen. Instead, the G7 have talked about a “stronger coordinated response to economic conditions” as they see downside risks growing for the global economy.
With housing and manufacturing industries doing so badly I’m just glad to see the meaningless flannel factories are alive and well.
That said, we are still looking for another policy impetus from the Bank of Japan in June alongside additional fiscal moves by the Japanese authorities and additional credit easing from the European Central Bank in Q3 although this may slip in Q4.
A lot depends on what happens in June of course.
US GDP set to rise but is it useful?
The focus today is on the United States and the second iteration of GDP for Q1. I have never been the greatest fan of GDP as an indicator. This is the second, and still incomplete, reading of what the US economy did between January and March and we are coming into the last month of the 2nd quarter; a week is a long time in politics but it’s a damn sight longer in economics and markets. The data is not useless in itself but I feel that there is little to glean from this announcement than from separate trade, industrial output, consumer spending or housing numbers.
That being said if the number does come through higher than the 0.9% annualised gain that is expected then traders are going to tip themselves further into the USD on the basis of an increased chance of a June hike.
For now however, markets look prepped for a long weekend before a month of volatility comes to bear.
Have a great day and a better long weekend and we will see you on Tuesday.