Theresa’s meaningful vote on “Meaningful Vote”
In the absence of economic data, concerns that US-China trade tensions would escalate, undermining global growth and constraining UK growth, weighed on the Pound. Markets also downgraded their expectations of a more hawkish tone at Thursday’s monetary policy meeting. The government rejected amendments on a meaningful vote in the EU Withdrawal Act as suggested by the House of Lords. The risk of government defeat in the House of Commons increased and maintained political fears.
The Pound slumped against the Euro and fell sharply to near 1.3150 against the Dollar. Further governmental concessions could be required to edge today’s House of Commons Brexit vote. EU chief negotiator Barnier’s mixed comments yesterday haven’t helped Sterling investors’ nerves. Sterling was unable to regain significant ground and held close to 1.3150 on market open and the Euro was again testing the 1.1365 area.
US May housing starts increased 5.0% to an annualised rate of 1.35mn from 1.29mn previously and significantly above consensus forecasts of 1.31mn, although building permits declined on the month which may be an indicator of supply-side issues. The overall impact was limited as markets focussed on trade issues. The Dollar index pushed to an 11-month high as commodity currencies buckled under further selling pressure.
European Central Bank (ECB) President Draghi stated that there is growing evidence that broad-based economic growth is beginning to generate positive inflation dynamics and market pricing offered some comfort over the resilience of inflation ahead of the ending of asset purchases. He also stated that uncertainty surrounding the growth outlook had increased recently.
Markets tended to focus on the negative aspects and the rhetoric overall failed to boost Eurozone confidence amid concerns over the fragile outlook. ECB council member Liikanen also commented that the central bank could hold rates at zero beyond the Summer of 2019 if necessary, reinforcing adverse yield spreads, and the Euro retreated sharply once again.
The German IFO institute revised its GDP forecasts lower with 1.8% growth expected for 2018 and 2019 compared with previous expectations of 2.6% and 2.1% respectively. Given the sensitivity of German growth to Chinese demand, the Euro dipped again with lows below 1.1550 against the Dollar, just above the trough recorded after last week’s ECB meeting.
Data to Watch:
00:50 JPY BoJ Monetary Policy Meeting Minutes
09:00 EUR ECB’s Lautenschläger Speech
11:30 EUR ECB Cœuré Speech
14:00 CHF SNB Quarterly Bulletin
14:30 USD Fed’s Powell Speech
14:30 JPY Bank of Japan Governor Kuroda Speech
14:30 EUR ECB President Draghi’s Speech
14:30 AUD RBA’s Governor Philip Lowe Speech
15:00 USD Existing Home Sales (MoM) (May)
23:45 NZD Gross Domestic Product (QoQ) (Q1)