We saw another strong day for global equities and risk trades yesterday as once again the market read ‘no news’ as good news on the trade tensions front. It wasn’t such a smooth day for the pound and UK markets as we saw two high profile resignations from the cabinet after PM Theresa May pushed through her soft Brexit plan. Both David Davies and Boris Johnson quit after the weekend’s cabinet conference and fears that this could prompt a leadership challenge saw the pound down nearly 150 pips on the day. A soft Brexit is generally considered sterling positive and if the turmoil fades through the week we could see the pound supported on the back of some progress on Brexit and rate hike expectations.
The Euro remained in familiar ranges overnight as we heard from a number of EU representatives including Mario Draghi who reconfirmed caution with regard to policy moves despite an other wise EU positive speech – rates on hold until at least summer 2019.
Looking ahead to today’s trading and expect more of the same with regard to the ever present Trade tension situation, no fresh news should remain risk friendly but any escalation of the issues via new tariffs or other means could see hard moves to the downside.
In the Asian session we have Business Confidence numbers in Australia as well as CPI and PPI data due out from China. The focus in the London session will once again be on the pound and Euro as any further news on the UK government and it’s Brexit plans will add further volatility to sterling as well as key GDP and Manufacturing Production number due out. Euro traders will be focussing on the latest German ZEW print later in the day with market expectation sitting at -17.9. It’s quiet on the data front in the New York session but expect the news wires to be busy again as despite positive moves in the market the risk of increased global trade tensions could add to volatility.