Sterling gives up most of its gains overnight as the British Parliament once again rejected all alternative proposals put forward to replace Theresa May's plan. The British PM will convene her cabinet today to discuss the way forward, which may include a longer delay, snap elections or even a second referendum. The Dollar gained yesterday tracking Treasury yields higher even though the US Retail Sales report missed its mark, Durable Goods Orders on the docket today. The Euro has hit 1.12 on greenback's strength, Gold tread water below $1,290 while Oil hit $62.
The British Pound again dominates the headlines this morning following another failed attempt by the Parliament to find a way out of the woods. All motions put forward yesterday failed to secure support from the majority of the Commons, but what strikes us as interesting is that the request for a second referendum was defeated by a margin of 12 votes. Moving ahead, May is scheduled to meet with her cabinet today, in a meeting that could trigger a meaningful development: may it be calling for snap elections or a second referendum? It remains to be seen but time is running out and Theresa May said last week that this Parliament has nearly reached “the end of the road” in regards to finding a solution, which sounded cryptic to say the least.
The Pound's price action over the past 24 hours has been rather familiar: a rally higher towards 1.3150, only to be followed by a drop to 1.3050. This morning, prices seem to be pointing to the upside but Sterling's direction will be dictated by the proceedings of the day. A positive outcome from May's cabinet meeting will trigger a break above 1.3150 with a view to hit 1.3250 quite quickly, while a continued lack of progress will prolong uncertainty and drive the Pound to 1.30 again.
The Dollar gained yesterday as it tracked the rally in the UST yields that reached 2.5% late last night; albeit, another piece of US data missed its mark: retail sales unexpectedly dropped -0.2% last month compared to expectations for an equal advance. This is yet another signal of weakness in the US economy which highlights consumers' defensive bias, falling in line with the drop in consumer confidence printed last week. Admittedly though, the ISM manufacturing data did print stronger than expected, somewhat offsetting the bearish retail sales takeaway. Now the spotlight falls on the Durable Goods and Services ISM reports pending during the next 48 hours and more weakness seen here will not bode well for the US currency. The event of the week is undoubtedly the NFP report on Friday but that doesn't mean that investors are not taking note of the consecutive bearish figures out of the domestic economy.
Gold remains largely unchanged holding below the $1,290 mark, while the Dollar seems to be easing its advance. Our outlook is still bearish over the yellow metal's short-term direction, not based on the greenback's price action but more on the fact that risk-off flows have diminished and Gold should see a deeper correction before a new leg higher is triggered. The next area of support is found around the $1,280 figure and unless we witness a rally above $1,300 we will remain focused on the downside. On the flip side though, Oil has confirmed our bullish call for $62 and hit this level early this morning. The price action is becoming a bit overstretched at this point and even though we retain our optimistic outlook, we will not be surprised if we see an interim correction, with $60 the level to watch.
Equities ended the day in the green around the globe with investors pleased to see Treasury yields advancing, a sign that risk sentiment is improving a bit. The beat in the manufacturing ISM data out of the US also helped indices climb higher, even though market participants disregarded the miss in the retail sales. At this stage, optimism seems to be the prevailing theme in the equities markets while futures in Europe and the US are expected to open flat. Global indices are approaching their all-time highs so the question now becomes: will we see Dow Jones hitting 27,000 points? Barring a nasty surprise on the geopolitical landscape, the odds are certainly in favor of a fresh peak.
MARKET EVENTS TO WATCH
- UK Construction PMI - 12.30pm
- US Durable Goods Orders - 4.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research