June 07, 2022

Daily Report 07/06/2022

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Just after Monday’s European open it was announced that Prime Minister Johnson would face a confidence vote given that the required number of no-confidence letters had been reached. There was some surprise that the vote would be held with very short notice on Monday. Sterling was able to post net gains on the news with some hopes that there would be an easing of political uncertainty which would allow a greater focus on the economy. There was also an element of speculation that the Bank of England would be more willing to raise interest rates. Overall risk conditions were firm with solid gains in equities which attracted an element of Sterling support on short covering. Risk conditions were less confident later in the day which sapped potential support. Prime Minister Johnson won the Conservative Party confidence vote, but 148 MPs and over 40% of members voted against. In this context, the result will maintain a high degree of underlying uncertainty which will tend to undermine sentiment. BRC data recorded a 1.5% decline in annual like-for-like sales, maintaining concerns over the outlook. 

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There were no major economic data releases on Monday and overall conditions were relatively subdued, especially with market holidays in Germany and France. The Euro held steady in early Europe, but was unable to make further headway and gradually lost ground as the dollar posted net gains. There was selling interest in low-yield currencies with the yen and Swiss franc also under some pressure amid expectations of global monetary tightening. The Euro was unable to gain further support from expectations of a hawkish ECB policy stance at this week’s policy meeting with rate hikes priced in. There will be a further element of caution ahead of Thursday’s ECB policy meeting with forward guidance important for the medium-term trend. There are very strong expectations that the ECB will increase rates in July and evidence of a 50 basis-point increase would underpin the Euro.

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As far as the Federal Reserve is concerned, there will be no public comments on monetary policy ahead of the June 15th policy meeting. The US may employment trends index edged lower to 119.77 for May from 120.18 the previous month with an increase in the number of respondents who stated that jobs are hard to get, although there was no significant impact following Friday’s employment report.

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