US Jobs Friday & UK Election polls this week...

Week Commencing Monday 29th May 2017

 

UK: General Election polling continues to point south for the Conservatives.

Labour continues to close the gap on the Conservatives as the parties fly towards the General Election on the 8th June.

The latest set of polls put Labour on 37 percent, up three points on a week ago and six points behind the Conservatives, who remain unchanged at 43 percent. The Liberal Democrats remain at 8 percent while UKIP continues to collapse at 4 percent.

Meanwhile the SNP are down one point to 2 percent (when taken nationally) while the Greens also lost a point putting them on 1 percent. This comes after both leaders battled on a Sky News Q&A session, with Jeremy Paxman delivering his usual political battering.

Markets have seen a strong reversal since the polling levels started to tighten, with Sterling dropping against all majors. Should Corbyn continue his advances, we expect significant market ramifications. With only two weeks to go, it seems there is all to play for! One outcome is good for markets, the other bad, which is it going to be?

UK: GDP revision disappoints Brexiteers!

UK GDP has been revised down to 0.2 percent from the initial estimate of 0.3 percent, the ONS has reported.

On an annual basis, GDP expansion was also lower at 2 per cent, down from a flash first estimate of 2.1 percent. The economic prospects for the UK have been widely forecast to slow this year as the British consumer begins to feel the pinch from higher inflation after the Brexit vote.

With prices rising at a four year high of 2.7 percent last month, real wages have fallen negative for the first time in two and a half years. Diving into the figures, the ONS said the growth downgrade was driven by weakness in the services sector which expanded just 0.2 percent, representing its poorest performance since 2015.

There was more encouraging news on business investment, which expanded 0.8 percent on the tear to its best pace since the end of 2015. The UK’s 0.2 percent quarterly expansion compares with an average of 0.5 percent in the Eurozone in the first quarter, and 0.6 percent for Germany. The revision also puts UK GDP expansion lower than Frances 0.3 percent but slightly ahead of the US at 0.175 percent.

GREECE: Debt mountain continues to grow as disagreements hit creditors.

Greek finance ministers have urged both the IMF and European creditors to come to a decision next month regarding Greece’s massive bailout package.

The deal granting Greece debt relief has been held up by disagreements between the International Monetary Fund and European creditors led by Germany on Greek fiscal targets.Greece could default on its debts in July if it can't repay some 7.3 billion euros. To ensure the new bailout funds, the Greek parliament approved pension cuts and tax hikes last Thursday.

However, for the payment to proceed, the Greek government needs to implement new laws to make the reforms stick, and some have yet to be passed. With German elections looming, debt relief seems a long way off! Instead, the Eurozone has indicated support for extending repayment periods or reducing interest rates on Greece's loans next year.

Could this be the story which kills the European good news round, possibly! Watch this space!

 

FX Forecast

Sterling (GBP) - Sterling continues to feel the pinch as UK general election polls tighten. We expect the election to continue to dominate UK markets, with further Conservative losses likely to push Sterling and other UK assets lower.

With little in the way of rest bite, we expect either a continuation of current market trends, or a lowering of Sterling assets should we see continued Labour poll success.

US Dollar (USD) - The greenback remains trading on the back foot as US political risk continues to dominate the agenda. Should we see further moves from the Trump administration, expect to see further US Dollar losses.

In terms of data, we expect lacklustre economic indicators from the US this week, therefore we see little rest bite for the Dollar. Expect EUR/USD to continue to push towards 1.12 therefore.

Euro (EUR) - The Euro continues to push forward on the back of bullish GDP numbers, hammering both the Dollar and the Pound. With a light week on the data front, we see no reason why the Euro should not continue to trade further, potentially pushing Sterling into the 1.14’s and the Dollar to 1.12.

 

Economic Calander for the Week

UK Data:

With little from the UK for the remainder of the month, all eyes now turn to the both Manufacturing and Services PMI. We expect Manufacturing to post slightly down from last month at 56.5 versus 57.3 in April. Construction meanwhile should also post slightly lower figures at 52.7 versus the 53.1 print last month. All in all, a mixed to poor week expected form the UK.

US Data:

The US data set dominated the end of the week with ISM Manufacturing out on Thursday and Unemployment numbers on Friday. ISM should come in slightly lower on the month, posting 54.5 against last months 54.8 figure.

Friday’s unemployment rate should remain stable at 4.4 percent which non-farms should decline markedly to 183k from 211k. As with the UK, expect a poor week of economic data from the US, adding further pressure to the Dollar as we draw closer to June.

EU Data:

As with the UK, we expect Eurozone Manufacturing PMI alongside the unemployment numbers this week. We expect the unemployment rate to drop from 9.5 percent to 9.4, adding further fuel to the Euro’s fire! Manufacturing is likely to remain to 57 for the month, which represents a healthy level of growth for the zone as a whole.

With this in mind, expect further Euro strength as we draw closer to June. 

 

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