European stock markets had a disappointing day yesterday, sliding across the board with the FTSE100 leading the way. While the rebound in the pound certainly didn’t help the FTSE’s cause, the catalyst certainly wasn’t yesterday’s surprise political announcement from Westminster.
Sharp falls in commodity prices had already seen the mining sector drag on the market with iron ore prices hitting their lowest levels this year, down over 30% in the last two months, while copper prices also slid, hitting their lowest levels since early January, as oversupply concerns rippled through the commodities space.
Yesterday’s surprise move by UK Prime Minister Theresa May has invited criticism in some parts, however given the narrowness of the Conservative majority and the refusal of a number of politicians to accept last year’s referendum vote, the likelihood of further Brexit related flash points between now and April 2019 were always likely to be a clear and present danger to the success of the upcoming negotiations, as well as her room for manoeuvre.
In calling a swift election between the French and German elections she will be hoping to take advantage of the weakness of her political opponents who are in disarray, as well as diluting the influence of the more extreme elements of her own party on the Brexit process.
While it is easy to criticise the Prime Minister for her U-turn on this any other politician in the same position would have done exactly the same thing and to pretend otherwise is disingenuous in the extreme. In essence she has laid down the gauntlet to all those carping from the sidelines to put up or shut up, as well as negating the potential pitfall of the 2020 election date.
The sharp jump higher in the pound on the currency markets speaks volumes, though it was helped by another 2017 growth upgrade from the IMF, in that a refreshed and potentially increased mandate also takes us well beyond the EU exit date, as well as past the 2020 election date which could have been used by EU negotiators as a stick to beat the UK with at the negotiating table.
As such the timing of this has the potential to be extremely useful to the UK in negotiating a much better deal in the time allowed, and levelling out the playing field with respect to its European peers, by aligning the electoral cycles so that no one party holds a superior hand.
It is expected that today’s vote in the House of Commons will be a formality in triggering the process of the electoral process, the downside of which means that we’ll get to hear the same old reheated arguments that we heard over a year ago, hopefully without the scaremongering.
On the data front we get to see the final EU CPI numbers for March confirmed at 1.5%, down from the 2% number we saw in February.
EURUSD – a break through the 1.0750 level has the potential to push up towards the 1.0850 area and March peaks. The uptrend from the January lows remains intact while above the 1.0600 level.
GBPUSD – the pound continues to exert upward pressure, breaking above its recent peaks and the 200 day MA as well as its triangular consolidation, and which should extend the upside towards the 1.3000 area initially, on the way to 1.3320. Initial resistance at the December peaks at 1.2795, has given way overnight with support at 1.2620.
EURGBP – yesterday’s break lower opens up the lows in December at 0.8300. A move below here has the potential to open up a move towards 0.8000 initially. A recovery back through the 0.8450 level is needed to stabilise.
USDJPY – last week’s break below the 110.00 area has brought us to the 108.00 level and 200 day MA. If this gives way then a move towards the 100.00 level could well happen quite quickly. The US dollar needs to get back though the 110.20 area to stabilise.
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