The UK election results have dominated trading overnight. Cable took a two cent hit when exit polls projected that the Conservatives would lose their majority, a major setback for PM May as her early large lead evaporated.
The blow was cushioned somewhat as the night progressed. The Conservatives won 318 seats and with the support of Northern Ireland's Democratic Unionist Party, which won 10 seats getting them clear of the 326 seats needed for a majority is looking to form a government.
The results could make it more difficult for the PM, who plans to stay on despite blowing the election, in Brexit negotiations. Talks with the EU are expected to start June 18 although there has been chatter back and forth as to whether this could be delayed, and whether the results mean we are heading toward a hard or a soft Brexit.
The EU may see the mixed result as giving it the upper hand in negotiations, making it less likely the EU is going to extend any olive branches. Instead the EU may try to make an example of the UK instead in a bid to keep other EU members in line. Interestingly, the Euro is down against USD and flat against JPY indicating that traders aren’t seeing the result as a win for the EU either, more of a muddying of the waters. It does look, however, like the push for a second Scottish Referendum has stalled with the SNP losing 21 seats from 2015 including former leader Alex Salmond's, 13 of which were picked up by the Conservatives.
Gold and the Japanese Yen are trading moderately lower this morning. It appears that the street is considering the news of the last 24 hours, including the Comey testimony in Washington, and signs Macron's party is set to win big in French parliamentary elections, as having reduced the risk fo political turmoil impacting the global economy somewhat. Sentiment could any time, however, with new rumblings out there. Spain's Catalan region has scheduled an independence referendum for October 1st over the objection of the federal government, Greece's Parliament is voting on more reform measures today, and it's uncertain when Italy may go to the polls after an election reform bill failed.
Stock markets are picking up into the end of the week. The FTSE tried to rally with the pound dropping, but was unable to hold above 7,500 and did not get anywhere close to a new high, a sign it could be peaking. The Dax and CAC are up 0.4% while US index futures are up slightly. UK industrial and construction figures were disappointing. Germany’s trade balance shrunk which could be welcomed by its trading partners.
Canada employment numbers are due this morning. Last month employment was steady with a big drop in full time offset by an increase in part-time. This month the street is expecting a 15K increase which sounds reasonable to me. Canadian economic data has been steady to a bit soft showing an easing in Q2 like the Bank of Canada expected after a hot Q1. In addition to the headline number, whether we get a rebound in full time positions or not could have an impact on CAD trading Friday. I’m thinking 10K slightly below street.
There have been no major corporate developments this morning.
Significant announcements released overnight include:
UK election results
Conservative 318 down from 331 in 2015
Labour 261 up from 232
SNP 35 down from 56
Liberal Dem 12 up from 8
Democratic Unionist 10
UK industrial production (0.8%) vs street (0.3%) vs previous 1.4%
UK manufacturing production 0.0% vs street 0.7%
UK construction output (0.6%) vs street (0.3%)
UK trade balance (£2.0B) vs street (£3.5B)
Germany trade balance €18.1B vs street €23.0B vs previous € 25.3B
Upcoming significant economic announcements include:
8:30 am EDT Canada employment change street 15K vs previous 3K
8:30 am EDT Canada full-time jobs previous (31K)
8:30 am EDT Canada part-time jobs previous 34K
8:30 am EDT Canada unemployment rate street 6.6%
Heightened market volatility is likely over the election period, which could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.
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