Europe
A tale of two polls has seen the pound whipped around on the day with a YouGov poll this morning raising the prospect of a hung parliament, while another Panelbase poll points to a 15 point lead for the Conservatives, though this poll is over a week old.
Despite this fresh uncertainty the FTSE100 has continued to push higher, making new record highs as it closes out its best month so far this year.
Markets in Europe have also had fairly decent month, and while they have been somewhat mixed today, they still look on course to post a fourth successive positive month.
Weakness in commodity prices is weighing on the mining sector despite some improvement in the latest Chinese economic data. Iron ore prices have slipped back again hitting their lowest levels since October last year, while nickel prices have also fallen to an 11 month low, with Rio Tinto (LON:RIO), BHP Billiton (LON:BLT) and Glencore (LON:GLEN) slipping to the bottom of the UK index.
The broad sterling weakness that we’ve seen today has helped underpin the FTSE100, particularly those companies that derive a significant income stream from their foreign earnings, with Burberry (LON:BRBY), Diageo (LON:DGE) and Reckitt Benckiser (LON:RB) leading the way.
US
Having closed lower for the first time in seven days yesterday US markets opened higher today, helped by a positive European session, though they have slipped back as banking shares have come under pressure, after comments from a couple of senior US investment bankers.
An admission by JPMorgan (NYSE:JPM) CFO Marianne Lake earlier today that the bank’s Q2 revenue would be down 15%, from a year ago, while Bank of America (NYSE:BAC) CEO Brian Moynihan also painted a similar picture, has seen banking shares nose dive, as lower volatility and narrower yield spreads begin to impact profitability.
On the earnings front, luxury fashion retailer Michael Kors (NYSE:KORS) reported earnings for its latest quarter, which showed a net loss of nearly $27m. In response the company announced that it plans to close 100 of its stores over the next two years, as the company cited a difficult retail environment, while also nudging its outlook for the year lower as well.
On the data front, following on from yesterday’s numbers, speculation is increasing that we will get another US rate rise when the US central bank meets in a fortnight’s time, however we may well see additional dissent to the move if comments from Fed governor Lael Brainard suggest she has further concerns on weak inflation.
Today’s latest data has once again pointed to a mixed outlook as Chicago manufacturing PMI came in weaker than expected for May, though it was still a fairly positive 55.20.
Attention will now turn to tonight’s Fed Beige Book of economic conditions to establish whether some of the weakness being seen in recent manufacturing numbers is matched across all the Fed regions.
FX
The euro has had a decent day as the improvement being seen in the latest European economic data continued today as unemployment data showed further falls in April and May. German unemployment hit a record low while EU unemployment hit its lowest levels since 2009.
On the inflation front we saw a slight softening in May as EU CPI fell back from 2% to 1.5%, and in so doing relieved some of the pressure on the ECB ahead of next week’s policy meeting, where the pressure had been increasing for the governing council to look ahead to a possible tapering of monetary policy in the face of better growth prospects and rising inflation.
The pound has come under pressure today after a YouGov survey suggested that the Conservatives could lose seats in next week’s election, with the result that we could end up with a “hung parliament”. While recent polls have shown that the Conservative lead has narrowed, the divergence in this poll is in stark contrast to other polls which all have the Tories in the lead. We’ll certainly know for sure next week, but the reaction of the pound would suggest that the market is not sufficiently positioned for such an outcome, and is adjusting accordingly.
It is becoming increasingly clear that continued Conservative party campaign missteps are feeding into increasing nervousness about what sort of majority they might get, particularly since the agenda appears to be being set by the opposition after Labour leader Jeremy Corbyn changed his mind about taking part in tonight’s leaders debate, meaning that the Prime Minister would be the only major party leader not to attend, inviting further scrutiny to her claim to be a strong and stable leader.
Both the Australian and Canadian dollar have underperformed on the back of weaker base metals and oil prices.
Commodities
Another slide in crude oil prices, to three week lows, has once again shifted the focus back to the ability of OPEC to meaningfully influence the mechanics surrounding reducing inventory levels. News that Libyan production is continuing to grow at levels last seen over three years ago, threatens the prospect that, with rising US output, the OPEC cuts will become almost meaningless.
Iron ore prices have continued to decline falling to its lowest levels since October last year.
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