Corbyn performance better than expected
21st November: Highlights
- Market positive over Conservative lead
- Fed to leave rates on hold for “some time”
- ECB concerned that Financial risks are growing globally.
Johnson holds lead giving market Brexit hope
The other two main Parties; the Conservatives and Liberal Democrats, are unequivocal in their Brexit message while Labour still seems to be unable to bring itself to make a definitive decision.
While Liberal Democrats may have lost a certain amount of support by favouring remain and committing to revoking article fifty were they to be elected and the Conservatives have been battling for three years to plot a course to leave, Labour find themselves stuck in a time warp, unable to satisfy voters with their” renegotiate and hold a second referendum” stance.
Voters are tired of the entire process, so a Party that promises further uncertainty is unlikely to find popularity. There is a high number of Labour supporting brexiteers, far more than there are Lib. Dem’s who favour departing. Jo Swinson, the Lib. Dem. leader may have a larger degree of power thrust upon her in the case of another hung Parliament. She confirmed yesterday that her Party will not support either Johnson or Corbyn to become Prime Minister and if there is no working majority, further chaos will no doubt ensue.
The other “wild card” are the Scottish Nationalists (SNP) who support remain but are more interested in a second referendum on Scottish independence. So, if Labour enter a pact with the SNP which sees Corbyn become Prime Minister, it is likely that there will be more Brexit agony and possibly two further referendums.
The City clearly favours (and expects) a Conservative majority with some polls putting Johnson’s lead at 18%, although it is likely, given what we have seen before, that there is a large margin for error.
The pound still awaits the Conservative manifesto although Johnson let a large cat out of the bag yesterday by announcing a huge reduction in employees national insurance contributions, although it will be phased in over five years.
Labour will publish their manifesto later today, but don’t expect a definitive Brexit policy since the unions haven’t yet decided where the Party should stand.
Yesterday, the pound remained in its recent range. Versus the dollar it traded between 1.2932 and 1.2887, closing at 1.2933. It has retraced a little versus the euro although it remains close to a six-month high. It closed at 1.1671, 21 pips above its low on the day.
Minutes show Fed “satisfied”
Powell faced the press following the release of the minutes and confirmed his colleagues’ view that political risks had weakened somewhat since the summer. It is certain that Powell was talking about pressures outside American borders since the heat is being gradually turned up under the President over his “quid pro quo with” or “coercion towards” or even “blackmail of” the Ukrainian President.
The bad, but hardly unexpected news, released late in the day that “phase one” of any agreement between Washington and Beijing is unlikely to be signed before the end of the year did little for confidence in either equity markets or the President’s popularity.
This is another blow to the President’s foreign policy schedule with Iran and North Korea likely to continue to be a thorn in his side going forward, Trump’s ability to demonstrate his “Make America Great” slogan suffers since his cupboard is bare when looking for low hanging fruit to demonstrate quick wins.
The dollar remains in limbo content with the Fed’s stance but it appears that each time there is hope over trade, the flames are quickly doused. Financial risks remain elevated highlighted particularly by high levels of corporate debt but with inflation picking up plenty of commentators see the next move as being a hike.
The index traded between 98.04 and 97.84 yesterday as ranges really start to narrow.
ECB Warns of growing risks to financial stability.
Yesterday, the ECB focussed on the level of lending being undertaken by “shadow banks“ rather than traditional lenders which makes debt harder to regulate.
Luis de Guindos a Vice-President at the ECB commented in a speech that “While the low interest rate environment supports the overall economy, we also note an increase in risk-taking which warrants continuous and close monitoring. Authorities should use available tools to address the build-up of vulnerabilities where possible”.
“Available tools” is an interesting choice of words since the Central Bank has spent the majority of 2019 hunting for just such tools to stimulate the economy.
The biggest risk to financial stability in the Eurozone is the rigidity of the Growth and Stability Pact. While it is clear that a free for all as occasionally promoted by Rome should be out of the question, a loosening of the purse strings allowing borrowing, outside the pact’s rules, for the purpose of major infrastructure projects would likely see some benefit.
The inability of Brussels to move quickly in such matters has been a bugbear of state treasuries and Central Banks for some time but until the new Presidents are able to post some viable proposals, the economy will continue to dwindle.
Today’s release of consumer confidence data for this month is unlikely to show much, if any, improvement. Last month consumer confidence fell by 7.6% year on year with this month expected to be much the same.
Yesterday, the single currency fell versus the dollar to a low of 1.1052, closing at 1.1074, just three pips below its opening level.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”