Optimism here, but being tested
Say it very quietly, but markets seem to be in a rather good mood all of a sudden, or certainly are as we enter Wednesday’s markets. Commodities have continued to gain following the brouhaha in Doha on Sunday, dragging equity markets with them. Risk seems to be back on the table and traders are more than willing to pick it up.
Sterling on the pick up for now
Nowhere was this more noticeable than in GBP/USD yesterday, which cracked a high of 1.4416 yesterday afternoon. A weaker dollar was probably the main impetus, a side effect of higher commodity prices, but a leavening of fears around the chance of a Brexit come the referendum has also been felt.
The ORB/Telegraph poll that gave the Remain camp a 9pt lead was the likely driver of this, but the reaction to the Treasury’s findings on Monday will have helped things as well. I doubt any of them will do it following Paddy Power paying out early on a hung parliament in the 2015 general election but, should the Remain camp be further bolstered in the polls by tales of economic woe, then I wouldn’t be surprised if some would countenance the idea. Likewise, it would take a brave man to say that sterling has seen its pre-referendum low.
Saying that, the bookmaker William Hill said yesterday that the majority of money wagered with it on the result has been for Leave.
Only 9 weeks to go!
China stimulus in doubt as much as Japanese exports
China has speed bumped this strength slightly overnight by signalling that there is less appetite for stimulus within the central bank, following recent upside growth surprises. Chinese shares have fallen by the most since February in today’s session.
Likewise, news of a 14.9% decline in Japanese imports boosted the Japanese trade surplus, but points to a real domestic demand malaise in March that will not be helped by a stronger yen. Export values and revenues are falling, and that is yet more bad news for the embattled corporate sector.
UK jobs; all about wages
The first bit of data on the docket today is from the UK, and we think has the ability to take some of the shine of sterling’s apple this morning. Unemployment data from the UK has been one of the few bright spots in recent months, but survey and anecdotal data has shown that this may be starting to dull.
The weakness in growth, PMIs and general consumer and business sentiment are depressants on the labor market, and it is a fear of ours that the momentum in job creation may be slowing; something that will deliver a knock on blow on to wage negotiations.
To be honest, unless gains in employment translate into wage growth, then they’re slightly meaningless numbers. We need to see that second round effect through wages and a pickup in productivity for it to be really the silver bullet that policymakers are looking for.
The figures are due at 09.30.