US Open Preview – Pound finds some buyers amid “smooth Brexit” speculation


M. Deltas & M. Hadjikyriacos, XM Investment Research Desk

Here are the latest developments in global markets:

  • FOREX: Sterling opened with a positive gap today, following news that the UK Brexit Secretary, David Davis, has resigned. UK Prime Minister Theresa May appeared to have agreed with her cabinet on the Brexit plan on FridayOn Monday, pound/dollar advanced by 0.42%, rising to a 3-week high of 1.3362, with Dominic Raab being appointed new Brexit Minister. The US dollar underperformed on Friday and Monday against a basket of six major currencies, as the US jobs report was softer than expected. The dollar index fell by 0.22% on Monday, posting a 3-week low. On the other hand, dollar/yen remains steady near its opening level. Euro/dollar inched up to 1.1769 (+0.20%) and is set to post its fifth straight bullish day. The antipodean currencies got a small boost from a struggling greenback. Aussie/dollar and kiwi/dollar were up at 0.7479 (+0.67%) and 0.6843 (+0.26%) respectively, near 3-week highs. Dollar/loonie was steady at 1.3078.
  • STOCKS: European equities were in the green, with every single major blue-chip index being comfortably in positive territory. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were up by 0.65% and 0.49% respectively, as they opened with a positive gap on Monday. The German DAX 30 rose by 0.35%, recording a 2-week high, while the French CAC 40 gained 0.66%, posting a 3-week high. The Italian FTSE MIB traded higher by 0.65%, while the UK’s FTSE 100 climbed by 0.41% and posted a new 10-day high earlier. Asian equities closed higher, while futures tracking the US indices were pointing to a positive open after three consecutive bullish days.
  • COMMODITIES: In energy markets, West Texas Intermediate (WTI) crude oil and London-based Brent crude oil were mixed. WTI was down by 0.12% at $73.71 per barrel, while Brent advanced by 0.91% at $77.81. In precious metals, gold prices climbed by 0.72%, posting a new two-week high. Also, silver edged sharply higher by 1.22% at $16.1950, while copper surged by 1.21% at $2.847.

Day ahead: Quiet calendar, with Brexit & trade developments firmly in focus

 The remainder of the economic calendar on Monday features only second-tier data releases, with market focus instead likely to remain on the Brexit narrative, as well as the US-China trade standoff.

In terms of data points, US consumer credit data for May are due for release at 1900 GMT, though this indicator is typically not a major market mover.

In the UK, all eyes remain on politics following the resignation of the Brexit Secretary, David Davis. His departure has been interpreted in differing manners. Some view it as raising the odds for a “softer Brexit”, since one of the leading Brexiteers is leaving and the government’s new Brexit plan may allow the negotiations to move forward. Others argue it weakens Theresa May’s position as Prime Minister, increasing the chances for another leadership struggle within the Conservative Party. Investors seem to be siding more with the former view, but are not particularly confident about it, judging by the fact the pound is higher today – albeit not massively so. Sterling pairs will stay sensitive to any updates.

Turning to trade, markets remained surprisingly calm as the US and China fired the opening salvo in their trade standoff. Up until now, trade threats appeared more as posturing rather than anything else, and hence investors brushed them aside, mostly. However, it’s becoming increasingly more evident the two sides may be entering a vicious, self-enforcing loop of escalation, as neither wants to be seen giving in to pressure. The US has warned it’s considering tariffs on almost all imports from China ($500bn worth), and any hints it plans to follow through with such threats could lead investors to rethink whether this is all still posturing. The Japanese yen will likely remain the barometer for trade tensions, gaining on any escalations, or declining in their absence.

As for public appearances, ECB President Mario Draghi will be speaking at the EU Parliament both at 1300 GMT and 1500 GMT.