Tories well basted for Thanksgiving
Today's news headlines:
- ‘Trump signs Hong Kong pro-democracy bills’ - As anticipated, Donald Trump was forced to sign a bi-partisan bill which expresses support for the Hong Kong protests and requires yearly reassessment of Hong Kong’s autonomy as a basis for continued preferential trading terms. (Financial Times)
- ‘Christine Lagarde wants key role for climate change in ECB review’ - Christine Lagarde is set to reveal a new mandate for the European Central Bank which may include direct green goals, the first of the world’s leading central banks to direct monetary policy into quasi-fiscal space. (Financial Times)
Tories in the lead
In recent weeks, we’ve been relatively quiet on the upcoming UK election, because of inconsistent polling that didn’t quite nail down a solid Conservative lead. It’s also been a tricky period for the Pound, which ebbs and flows on any minor development but fails to decisively move in either direction. Last night’s YouGov MRP survey was a different story because it predicts that Boris Johnson is likely to win the largest Conservative majority in some decades. The in-depth model, which uses polling data from the preceding seven days from 100,000 people from across the country, was also used to more accurately predict the outcome of the 2017 election, which where Theresa May lost her majority. The forecasted majority of 68 seats would certainly allow safe-passage of Johnson’s Brexit deal through Parliament and provide some much-needed certainty for markets.
Last night’s poll also reflects that many people find the prospect of Jeremy Corbyn leading the UK as uncomfortable, at best. The Labour leader’s policies are much too maverick to resonate with most of the voting cohort and his leadership has been dogged by claims of deep-rooted anti-Semitism in the party. Whether or not people like or even plan to vote for Boris Johnson is becoming less of an issue, because so few people are willing to put Jeremy Corbyn into No. 10 Downing street.
Bottom Line: With two weeks to go until Britons hit the polling stations, Johnson’s conservatives will feel a sense of ease on the back of last night’s poll. Looking forward, it’s clear that Johnson’s Brexit deal might not be the best for the UK economically, when compared to a softer Brexit or no Brexit at all. Still, as we’ve previously commented, markets crave good news and a Conservative majority should be enough to propel the Pound higher in the short term.
Overnight we’ve seen an uptick in the Pound based on a Yougov poll which projected a clear majority win for the Tories. The Dollar has also been on a steady rise, probably helped along by yesterday’s strong US employment, Durable Goods and GDP data prints. As a result, the impact on the pair was modest but it is drifting higher towards the top of the range.
While Sterling has been trading flat for the past several weeks, the common currency has been trading lower and lower. The pair is trading towards 7-month highs as a result of UK polling data and looks well perched for the moment. Tomorrow a slew of EUR data will be key to watch for fresh perspective on EU growth, particularly Germany.
Given the gradual US rise and Euro depreciation, the pair been drifting lower towards 6-week lows. Bearing in mind the longer-term trend has been lower, our current position is only a cent away from two and a half year lows. A reversal of the trend isn’t likely in a next few days, but we are watching global growth expectations which have been brightening in the past week and could be a catalyst of reversal.