Middling Mansion House for sterling
Last night’s Mansion House speech from Governor Mark Carney pivoted to his market reform position more than the monetary policy aspect of his work and had little reaction on sterling. The pound had run higher in yesterday’s session in anticipation of a hint at rate hikes as the Governor gave us last year. This was not to be and the limelight has been stolen away from Carney by Osborne, which is never a good thing.
Osborne’s plans to sell off the UK’s stake in RBS (LONDON:RBS) is a necessary part of the fiscal normalising of policy that we hope to see in the coming parliament. The Bank of England has been talking about a normalising of monetary policy for a while now but it seems that Osborne would be looking to sell an asset just as the “signs of recovery are being seen”.
Sterling is still higher than it was 24hrs ago courtesy of some strong industrial production numbers from April that will allay fears that manufacturing will act as a burden on GDP growth in Q2.
Greek tennis match granted more sets
The back and forth on Greece would have the most seasoned tennis spectator with neck ache. The impasses between Greece and creditors are still there and market rumours hinted at German concessions to get the ball rolling. According to Bloomberg ‘people familiar with the matter’ have said that Germany may be happy to have Greece agree only one of the necessary reforms – pensions for example – before releasing bailout funds.
What this could mean is that we are back, talking about the same stuff by Christmas or in the early part of next year. If Samuel Beckett was still writing plays, this would be the stuff of his scribblings. In the least surprising news of the year so far, S&P downgraded Greece’s credit rating to CCC on expectations of a default in the coming months.
Euro was unable to gain through yesterday, mainly because we have so many false dawns on this subject that markets are finally unwilling to be spoofed higher by ‘chatter’. That being said, a deal would be EUR positive as and when it comes.
Kiwis cut
The biggest mover overnight has been the New Zealand which has slapped hard through the Asian session following a rate cut from the RBNZ. We called for one in Tuesday’s morning update and the RBNZ came through for us this morning bringing the NZD down around 2.5% on the session. They also hinted at further rate hikes to come – let’s see how Chinese data and commodities perform in the coming months.
Overnight news from China was broadly positive with industrial output rising 6.1% on the year with more people talking about some much needed stabilisation in data moving forward.
The day ahead
Today’s focus will be on French inflation that should show us further proof that the bottom in inflation has been put in in core Europe and US retail sales. The key with the latter is to see whether the increased disposable income from lower gas prices is finally being spent.
