Morning Call: It's 'May Day' for the UK
Today's Brexit vote is the crucial risk event for markets as Prime Minister May faces a near-certain defeat of her proposed deal.
Markets are noisy but not going anywhere. Wall Street opened in positive territory, but it remains to be seen if it will hold the gains ahead of tomorrow’s July 4th holiday. The US dollar can’t decide if it wants to move higher or lower. The Japanese yen strengthened slightly, and the Australian dollar weakened marginally while the rest of the G-10 majors are still hugging their New York opening levels.
US factory orders rose 0.4% in May, well above the 0.0% forecast. Wall Street may have been impressed with the gains, but FX traders couldn’t care less.
EURUSD is adrift. Positive sentiment after Germany’s Angela Merkel resolved a political crisis is offset by rising US growth and rate hike expectations.
Oil prices have collapsed from the European peak level of $75.22/b to $73.37/b. Saudi Arabia and Russia reaffirmed their promise to boost production by 1 million b/d to compensate for possible supply disruptions from Iran sanctions. In addition, the Trump administration has dialled back on threats to impose sanctions on all countries who import Iranian oil after November. They said they would review sanctions on a case-by-case basis.
FX and Wall Street trading will slow to a trickle in the afternoon as American’s head home to celebrate Independence Day, tomorrow.
Sterling couldn’t hang on to its post-UK construction PMI gains. Prices continue to be weighed down by lingering Brexit issues. GBPUSD is in a downtrend while prices are below 1.3180 with a break below 1.3100 extending losses to 1.3060.