• What to watch for
  • Sterling holding onto post-election losses
  • Yellen’s primed the market for higher rates
  • Tech stocks take the wind out of dollar’s sails

Toxic tech

At the close on Friday, the so-called FANG group of US stocks (Facebook, Amazon, Netflix & Google/Alphabet) sunk as much as 3% – a dramatic pullback given the market-beating performance of their shares so far in 2017. The proximity of the move to this week’s FOMC meeting can’t be glazed over. It’s just a few days until the meeting at which markets expect the Federal Reserve to raise rates for the second time this year and are likely to reaffirm their commitment to hiking the federal funds rate once more before the year is out. While such a move should strengthen the dollar, it’s been very well signposted by FOMC members and the dollar’s got the White House to contend with.

May’s reshuffle haunted by ghosts of the past

The Conservative Party’s failure to secure a workable majority last week is, unsurprisingly, still all that markets are talking about. Theresa May still has a very long to-do list before the act of governing can really begin and markets will move on: nail down an agreement with the DUP, face her Tory lawmakers this afternoon, re-assemble her cabinet after yesterday’s reshuffle, write the Queen’s Speech and prepare for the formal beginning of Brexit negotiations (both due a week today). Every single item on this list becomes even trickier when you know that you’ll re-enter Commons with more enemies than allies.

As part of her reshuffle, May’s brought in some of the more popular characters of the Brexit campaign; even those with which she’s had a chequered past. Prominent Brexiteers, namely Michael Gove and Andrea Leadsom, have been promoted to senior cabinet positions despite unceremoniously sacking the former, and seeing off a leadership bid from the latter all within the last twelve months.

What does this mean for Brexit?

Bringing two prominent, hardline Brexiteers to the fore just a week or so ahead of the beginning of negotiations with Brussels would suggest this minority government are steering toward a harder-form of Brexit, but this assumption may be misplaced. Through losing her majority and looking to join forces with a Northern Irish party, May could be forced to concede some of the harder positions of Brexit (blunt controls on borders, tariffs and trade) in order to please the more mixed House of Commons. To do otherwise could mean passing legislation in a hostile House of Commons becomes even trickier.

EURUSD: Euro continues to recover following last Thursday’s ECB.

GBPUSD: Sterling still sitting on election inspired losses, but today’s been quiet ahead of key data due this week.

AUDUSD: A quiet beginning to the week with the pair relatively unchanged.

USDCAD: Monthly lows eyed at 1.3390, but minimal Canadian data will keep focus on USD.

USDJPY: Yen still stronger in wake of Friday’s US equity sell-off. A recovery in tech stocks could result in a weaker Japanese currency.