Seismic Super Thursday
Halifax house prices for May recorded an increase to 0.4% with annual growth at 3.3%, up from 3.0% previously. The Rightmove house price data recorded a net positive balance of 17% from 22% previously amid further evidence of an underlying slowdown, although the overall impact was marginal.
The final UK election opinion polls overall continued to show a significant lead for the Conservatives, with ICM reporting a handsome lead and Survation reporting a slender one point lead. The markets have priced in a “comfortable” Conservative majority in the election, with market anticipation providing net currency support. Although the Pound was undermined to some extent late in the European session by a decline in oil prices, the UK currency held close to two-week highs above 1.2950 against the Dollar on Thursday.
After the media blackout while polling is open, the exit polls will kick off a volatile trading session which will continue until after the outcome is certain. The Pound is liable to depreciate sharply if the Tories fail to win a majority, whereas any Sterling gains in the event of a sizeable majority for Theresa May could quickly encounter profit taking.
The grapevine was abuzz yesterday with leaked reports that the European Central Bank (ECB) would upgrade its growth forecasts slightly in the new staff projections due to be released today. Significantly, however, there were also reports that there would be a slight lowering of inflation forecasts, with the projections over the next three years lowered to 1.5%. Any downgrading of inflation forecasts would also increase the potential for a broadly dovish message at the ECB meeting and Draghi’s press conference. The statement and overall rhetoric will be very important for the direction of the Euro with the potential for high volatility.
The Euro came under pressure following the reports with a decline to near 1.1200 against the Dollar before regaining ground to open at 1.1250 this morning.
There were no significant US economic data releases yesterday and there was an important element of caution ahead of key economic and political risk events due in the US today. Overall, the Dollar was unable to gain any significant traction with expectations that next week’s Fed statement would be relatively dovish given recent inflation data.
Meanwhile, the USD dynamics will also play a crucial role with former FBI director James Comey due to give testimony to the Senate Intelligence Committee at 4:30pm UK time. Mr Comey has released a seven-page opening statement ahead of questioning. Whilst these investigations usually take months if not years, it will drive short-term USD sentiment. Later, the weekly jobless claims will be released.
Data to Watch:
10am – 10pm GBP Parliamentary Election
EUR Gross Domestic Product s.a. (QoQ) (YoY).
12:45pm EUR ECB Deposit Rate Decision. EUR ECB Interest Rate Decision.
1:30pm USD Initial Jobless Claims (Jun2).
13:30pm EUR ECB Monetary Policy Statement and Press Conference.