June 7, 2022

“Prime Minister Boris Johnson survived the no confidence vote, but the British sterling plunged to near three-week lows this morning, as the weakness of the PM unsettled investors – Britain’s gloomy economic growth outlook continues to cast doubt on the trajectory for rate rises.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The Securities and Exchange Commission is exploring an overhaul of US stock market rules to strengthen competition and ensure individual investors are fairly treated after the explosion in retail trading during the coronavirus pandemic. The regulator has been reviewing equity market structure since last year, when chair Gary Gensler said the meme-stock frenzy highlighted “inefficiencies” in the market. Gensler has settled on several potential proposals, including the creation of an auction system designed to increase competition between services for retail investors. The plans are likely to be welcomed by exchanges such as Nasdaq and the New York Stock Exchange, which have been lobbying for a more level playing field to compete with off-exchange trading groups such as Citadel and Virtu Financial.

Boris Johnson last night survived a bruising confidence vote, but his victory by 211 to 148 in a ballot of Tory MPs left him badly damaged and exposed the scale of the division and animosity in his party. The result means that 41 per cent of Johnson’s MPs wanted to oust the prime minister. The revolt was more serious than Downing Street had expected and leaves his authority badly damaged. Johnson told MPs his victory would end months of speculation about his future, and he would now be able to focus fully on policy delivery, holding out the prospect of future tax cuts. But the confidence vote, triggered after more than 15 per cent of his MPs withdrew their support from him, was accompanied by rancour and withering criticism of the prime minister from his colleagues.

GBP

Sterling is weaker than most major currencies in the early morning trade. British consumers cut back sharply on spending last month in almost all areas apart from holidays as the rising cost of living hit budgets hard, according to industry data. Households adopted a more frugal approach in May with inflation running at its fastest annual pace in 40 years, stoked by a 54 per cent jump in the cost of average gas and electricity bills a month earlier. Meanwhile, Chancellor Rishi Sunak backed Boris Johnson yesterday, while denying that he had timed the announcement of his £15bn cost of living package in order to help the prime minister stay in office. Thousands of UK holidaymakers have been left stranded overseas after the travel disruption gripping airlines and domestic airports worsened over the weekend.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Russia’s UN Ambassador Vassily Nebenzia stormed out of a UN Security Council meeting yesterday as European Council President Charles Michel addressed the 15-member body and accused Moscow of fueling a global food crisis with its invasion of Ukraine. The Swedish government looked set to survive a no-confidence vote later today against Justice Minister Morgan Johansson after independent member of parliament Amineh Kakabaveh said she will refrain from voting on the motion. As the European Central Bank drops ever-heavier hints of new policy tools to limit the disparity in borrowing costs between more and less creditworthy members of the eurozone, it demonstrates the unique difficulties of a multi-country currency union at a time when monetary policy is already challenging central banks everywhere.

USD

The dollar is well bid against most major currencies overnight. US president Joe Biden will allow solar panel parts to be imported free of tariffs from four south-east Asian nations, offering a cost reprieve to US renewable energy project developers after months of uncertainty. Data show that passively managed index funds have overtaken actively managed funds’ ownership of the US stock market for the first time. According to the Investment Company Institute, passive funds accounted for 16 per cent of US stock market capitalisation at the end of 2021, surpassing the 14 per cent held by active funds. Several thousand migrants, many from Venezuela, set off from southern Mexico early Monday aiming to reach the United States, timing their journey to coincide with the Summit of the Americas in Los Angeles this week.

Markets

European stocks followed US futures and Asian peers lower today as investors fretting that surging borrowing costs will dent growth dumped risk assets. The dollar advanced and the yen sank to a 20-year low. The Stoxx Europe 600 Index slid 0.5% at the open, dragged down by technology and travel and leisure sectors. In the UK, the export-heavy FTSE 100 was little changed as the pound slid on concerns about the nation’s growth and risks to Boris Johnson’s leadership. A dollar gauge rose to the highest in more than two weeks. US bond yields topped 3% for the first time since early May, adding pressure to the Treasury market before it digests new supply and crucial inflation data at the end of the week. Investors are reluctant to take on risk and volatility remains elevated. Equities in Japan gained as a falling yen boosted exporters.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany April factory orders
9:00 a.m.: Switzerland May foreign currency reserves
9:00 a.m.: Spain April industrial output
9:30 a.m.: Germany May S&P construction PMI
10:00 a.m.: Italy Istat releases economic forecast
10:30 a.m.: UK May official reserves
10:30 a.m.: Spain to sell bills
10:30 a.m.: Euro-area June Sentix investor confidence
10:30 a.m.: UK May S&P/CIPS Services, Composite PMI
11:00 a.m.: Greece 1Q GDP
11:00 a.m.: UK to sell bonds
11:00 a.m.: Riksbank’s Ingves speaks
11:15 a.m.: Switzerland to sell bills, Austria to sell bonds
11:30 a.m.: Germany to sell linkers; Netherlands to sell bills
2:50 p.m.: France to sell bills
4:00 p.m.: ECB’s Wunsch presents Belgian Financial Stability Review
World Bank’s Global Economic Prospects report

Corporate Events

Earnings include JM Smucker

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