July 05, 2024

“Labour’s election victory was well forecasted by markets and sterling has edged up only slightly this morning. With the return of Bank of England speakers next week and a crucial set of US labour data this afternoon, however, there is plenty to keep investors busy.”

Sam Cornford – Head of Trading

Main Headlines

President Joe Biden is set to appear in an ABC news interview today as doubts swirl about his cognitive health and ability to serve for another four years. Bookies now place higher odds on current Vice President Kamala Harris winning the election than Biden, but he has so far remained defiant about remaining as the Democratic nominee.

The UK’s Labour Party has swept away the Conservatives in a landslide majority. With 8 seats still to be declared, Labour have won an extra 210 seats compared to 2019, securing 409, while the Conservatives are set to record their worst performance ever with 119. The Liberal Democrats are up to 71 seats, and the rise of the Reform party has won them four MPs.

GBP

The UK election had precisely zero immediate impact on the pound because the political stability boost had been baked in some time ago, but we can now look forward to the return of Bank of England speakers next week. Labour’s vast majority will undoubtedly have a significant impact on sterling in the long run, and it will be their relationship with the EU, fiscal policy, and growth achievements that will be crucial in this regard. Its direction and volatility over the next few months, however, will largely depend on rate expectations at the Bank of England. Today’s diary is dominated by labour data in the US, but Haskel, Pill, and Mann are among the British central bankers taking to the podium next week.

EUR

The euro continues to be buoyed by weaker odds of an RN majority and the softer US data. EUR/USD is still trading significantly below where it stood before Macron announced the snap election, but it is some 1.4% higher than its lows from last month. Yesterday’s release of the June meeting minutes showed some policymakers disagreeing with the first rate cut and arguing that it was not fully supported by the principle of data dependence. It is reasonably clear that the move was driven primarily by their previous promises to do so and the risk to credibility if these were broken. The recent data could easily have justified pausing a bit longer, and many suspect that the ECB would rather have liked to have done so. German industrial production disappointed significantly this morning, contracting by 2.5% in May versus a forecast for 0.2% growth. Retail sales are expected to have risen by 0.2% this morning and Lagarde speaks this evening, although the US labour market data will drive EUR/USD this afternoon.

USD

Non-farm payrolls and a Biden interview are the headline events for the dollar today. A series of weaker data this week has raised concerns about a pronounced slowdown in the US economy, notably with the ISM services PMI collapsing to its lowest level in four years. Expectations for the timing of the first rate cut have not moved dramatically – markets are now just more confident in it being September – but the boom in optimism has the dollar down more than 1% since Tuesday morning. The official estimate for non-farm payrolls this afternoon is 190K, down from last month’s stellar 272K print, although the soft labour data from this week likely has the market positioned for a weaker number. Payrolls have so far been the one labour market indicator refusing to sustainably nudge lower and have diverged from predictive indicators like NFIB hiring intentions, although most seem to agree that it is immigration and not market tightness fuelling much of this growth. The other main event is an ABC interview with Joe Biden, where markets and political commentator will be closely observing his mental sharpness, amid calls for his replacement that have boosted the odds of a Trump victory.

Markets

The July 4^th holiday had US markets shut yesterday, but activity in Europe and Asia saw Japan’s Nikkei rise to a record level and the UK’s FTSE 100 gain strongly as traders anticipate political stability. In the commodities world, a weaker dollar has lifted gold 1.6% this week, and oil is trading around its highest level since April.

Main Economic Events (All Times CET)

8:00am: German Industrial Production
11:00am: Eurozone Retail Sales
11:40am: Fed’s Williams speaks
2:30pm: Canadian Employment Change
2:30pm: US Non-Farm Payrolls
7:15pm: ECB President Lagarde speaks

To learn more about Ballinger Group, please visit our website or our LinkedIn page.