Europe returns from long weekend

2 May, 2017

Our prop desk has found some success closing out short EUR positions against a number of major currencies as the slid appears to be coming to an end, here. A long call on gold is however proving disappointing, whilst short US equity index trades that have been open for some time are also sitting in negative territory.

We have the start of a new trading month and the return to work from a long weekend for many markets today, although fundamentals appear to be relatively thin on the ground. The political agenda still to dominate with French and UK elections both looming, whilst North Korea continues to bait the US with suggestions it is readying another nuclear test. As it stands we’re not seeing much of a swing into risk aversion but there’s plenty to suggest that this mind set could need to change in the not too distant future.

The pound has been under a degree of pressure on recent trade with the shifting opinion polls ahead of next month’s snap general election proving some cause for concern. Incumbent PM Theresa May is seeing her lead being attacked by the opposition parties and although there’s still a considerable period of campaigning to be done, failure to deliver the hefty majority that had been expected will be cause for concern on the basis it weakens the Brexit negotiating position. We have seen some bumper UK economic readings of late so there’s always the chance that a print such as UK manufacturing PMI, due at 8.30am GMT today, could impress and deliver a boost for the pound, but the run up to the June 8th vote has the potential to act as a drag on the currency regardless.

The run-off round of the French Presidential elections takes place this coming weekend and although polls currently give Macron a significant lead, there’s a wariness that low voter turn out could still leave this as an open race. A televised debate on Wednesday will be under scrutiny, whilst the far-right candidate is also working to encourage those on the opposite side of the political spectrum to abstain from voting, on the basis they disprove of some of the business-friendly proposals being tabled by Macron. It seems like a stretch but anything that shows a meaningful swing to Le Pen in the days ahead could exact a heavy toll on the common currency, at least in the short term.

We have a raft of wage and employment metrics due from New Zealand at 10.45pm GMT this evening. The RBNZ has made no secret of its intention to keep interest rates unchanged until 2019, but with an unemployment rate fast approaching 5%, a meaningful spike in wage inflation could leave the central bank having to rethink this plan. With a general election on the cards for September too, this further clouds the picture but with AUD/NZD trending higher off a belief that the RBNZ may need to ease rates, anything that plays down this idea can only be positive for the Kiwi dollar. 

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