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Boris attacks EU’s creeping “sovereignty”

Boris attacks EU’s creeping “sovereignty”

Tensions surrounding the EU referendum increased on Friday and through the weekend as the negative data trend for the UK continued. Monthly construction output printed at -3.6%, significantly worse than both the predicted -2.8% and the previous -0.9%. Following this, Sterling dropped to its lowest level against the Dollar in three weeks, briefly falling below 1.4350.

Expect all eyes to be on potential ‘Brexit’ concerns today following comments over the weekend from both Boris Johnson and David Cameron. With less than six weeks to go before polling day, pro-Brexit Tory MP Johnson compared the EU’s aims to those of Hitler in a ‘Vote Leave’ press conference on Sunday. He also explained that the democratic void may be caused by the lack of a “single authority that anybody respects or understands”. Prime Minister Cameron fired back in today’s Daily Mirror stating leaving the union would see a loss in jobs and an increase in prices, whilst describing a vote to leave as “a national error”.

As a result, Sterling will be turbulent despite today’s empty economic calendar as the market reacts to the public debates on the EU referendum. However, tomorrow’s inflation data from the UK should take the focus away from politics towards the end of the day.

The Euro has been trading sideways against the Pound since Thursday’s European trading session, ranging between 1.2673 and 1.2725. Last Friday’s weaker than expected European first quarter GDP (growth domestic product) figures were unable to move the single currency in any direction as data printed at 1.5%, 0.1% lower than the previous figure of 1.6%. There is no significant data to watch today. However, there will be the European union trade balance to look forward to on Tuesday.

Friday afternoon saw US retail sales data print significantly stronger than expected. The headline figure increased to 1.3% for April against expectations of a 0.9% gain. The March figure had shown a 0.3% decline. There was also a stronger than expected reading for underlying sales of 0.8%. The latest University of Michigan consumer confidence index was stronger than expected with an increase to 95.8 for April.

Fed Governor Brainard maintained a generally dovish tone in her speech, whilst San Francisco Fed President Williams stated he expected inflation to hit the 2% target within the next two years. Despite the stronger data, the lack of potential for a near-term increase in rates curbed further US Dollar buying.

Overall, the Dollar moved to a two-week high following the data releases with the Euro sliding to below 1.1300, although the US currency was unable to hold its best levels. Any significant strengthening of the US Dollar will require a catalyst.

Data to watch: 1.30pm US May New York Empire State Manufacturing Index. 3pm NAHB Housing Market Index. UK George Osborne speech, timing to be confirmed.

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