General election finally here!..

Week Commencing Monday 5th June 2017

 

UK: Manufacturing looking healthy as the sector adjusts to a weaker Pound.

British manufacturing clocked up its second fastest growth in nearly three years last month, putting the sector on track to shrug off the election and Brexit related uncertainty.

The Markit/CIPS manufacturing PMI slipped to 56.7 in May from a three year high in April. The aggregate index for the UK dropped to 56.7 in May from 57.3 in April, in line with economists expectations because the April result was unusually strong. This provides a welcome bit of good news for Theresa May, who has been suffering from a catastrophic campaign in recent weeks. At the start of the campaign in April, May seemed on track to win an increased majority.

But polls over the past week show the opposition Labour Party has eaten into her lead. May has highlighted the record number of people in work in her campaign, and Thursday's figures showed that manufacturers planned to hire staff at the fastest pace in nearly three years.

Overall, orders were growing at the second-fastest rate in the past three years, just off April's peak - matching similar upbeat results in a survey by the Confederation of British Industry earlier this month.

BRAZIL: GDP returns to the black after the worst recession in the country's history!

Brazil's economy has grown 1 percent in the first three months of 2017, putting an end to the country's longest recession in history, officials have announced.

The data shows that the latest GDP result was strongly influenced by agriculture and livestock which grew by 13.4 percent in the three first months of the year. Industry grew by 0.9 percent while and the services sector remained stable in comparison to the fourth quarter of 2016.

Many economists warn however that Brazil is not out of the woods yet, as the bumper crops in the first quarter won't be repeated in the second quarter and because most other parts of the economy are still underperforming. Brazil has been struggling with political turmoil, exacerbated with a poorly performing economy and corruption.

 

FX Forecast

Sterling (GBP) - Sterling remains in the hands of the gods with the election looming. We expect quiet markets until Friday morning when the results become clear. A conservative win should see Sterling recover sharply, however the degree of recovery will be dependent on the size of the victory.

Risks of a Labour coalition continue to loom and any hint of this outcome becoming reality will impact Sterling hard. With this in mind, expect Brexit style GBP sell-offs with a Labour win, and a 2 – 3 percent jump should Theresa May be successful.

US Dollar (USD) - With a light week for the Dollar on the economic front, we expect little movement from the greenback this week. GBP/USD could break through 1.30 on a Tory win, while drop back to the 1.21’s with a Labour victory. EUR/USD should remain reasonably stable throughout the week.

Euro (EUR) - With the ECB the only release of note, expect EUR prices to be driven by the UK election. A Tory win should see the rates return to the high teens, however a Labour win should push the currency back into single digits.

Outside the UK election, developments in Italy may continue to dominate the monetary landscape, and any adjustments to the ECB asset purchase program will push the Euro lower.

 

Economic Calander for the Week

UK Data:

We await Services PMI on Monday morning, with further declines in the index widely expected. The big event of the week is naturally Thursday’s election, with results likely to be released during the Singapore session around 4 am. Finally, Manufacturing Production is expected to be released on Friday, with markets widely predicting a reversal from the -0.6 percent to 0.8 percent for the month.

US Data:

We have a light week for the US with ISM Non-Manufacturing kick-starting the week, where we expect a slight reduction in the headline figure from 57.5 to 57.1. Attention then shifts to Wednesday’s Crude Oil Inventories, with further reductions expected. Finally, unemployment claims on Thursday should see a small reduction in numbers from 248k to 241k.

EU Data:

We have a light week for the Euro with the ECB Press Conference and rate decision the only event of note. We expect no change in policy this month, however Draghi’s conference will be interesting, especially in the context of raising Italian debt yields.

 

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